Annual Integrated Report 2020 Annual Integrated Report year during a tough Progress

Kendrion N.V. Annual Integrated Report 2019 ELECTROMAGNETIC TECHNOLOGY WHERE IT MATTERS Annual Integrated Report 2020 2

Ensuring optimal use of wind energy Keeping autonomous vehicles on the move 24/7 Helping save patients’ lives Brakes in the pitch control or azimuth drives of a wind Our smart distribution system for sensor cleaning keeps Our oxygen valves and pressure regulators are used in turbine help control the nacelle ensuring the blades face optical sensors clean and autonomous vehicles on the respirators around the world to enable artificial respiration the incoming wind and capture the most energy. move, in all weather conditions. on a patient (e.g. COVID-19).

Increasing safety of automated guided vehicles Driving passenger safety and comfort Releasing oxygen masks Our electromagnetic brakes increase safety in trend-setting Our products for suspension systems guarantee the highest In aircraft, our locking unit make sure that oxygen masks applications, such as automated guided vehicles (AGVs). level of passenger safety and comfort in tomorrow’s are automatically released above the seats in the event of vehicles, under different driving and road conditions. a pressure drop in the cabin.

Contents Profile Strategy Report of the Executive Board Outlook Report of the Supervisory Board Financial statements Annual Integrated Report 2020 3

Enabling high-energy lasers to operate safely Keeping vehicles ‘in check’ when parked Handling heavy loads safely Our optical shutter systems with rotary solenoids Our electromagnetic actuators ensure safe and reliable The demands on the crane and hoist industry range from contribute to the safety of laser-supported industrial locking of the vehicle transmission, preventing it from heavy to awkward loads. Our holding brake with a high- processes, such as marking, cutting, and welding. rolling away. energy emergency stop fasten heavy loads during handling.

Securing the safety of pedestrians and cyclists Keeping medical devices locked in place Managing continuous feeding in industrial processes In electric and hybrid vehicles, our acoustic warning Our electromagnetic brakes keep medical devices locked Our oscillating solenoids precisely manage the continuous system warns pedestrians and cyclists when the vehicle in the right position to ensure patient safety during bulk feeding of material in various automated processes. is approaching or reversing. a check-up.

Contents Profile Strategy Report of the Executive Board Outlook Report of the Supervisory Board Financial statements CONTENTS Annual Integrated Report 2020 4

2 Electromagnetic technology where 24 Members of the Executive Board 180 Other information it matters 180 Provisions in the Articles of Association 24 Report of the Executive Board governing the appropriation of profit 5 Profile 25 Automotive activities 181 Independent auditor’s report financial statements 28 Industrial activities 192 Independent auditor’s report CSR information 6 Organisation 31 Financial review 37 Sustainability 195 Five-year summary 7 Preface Joep van Beurden, CEO 57 People & Culture 62 Outlook 196 Principal subsidiaries 8 Facts and figures 63 Risk management 69 Corporate Governance Report 197 About the Sustainability Report 10 World map 74 Members of the Supervisory Board 11 Strategy and financial objectives 75 Preface Henk ten Hove, 14 Lighthouse platforms Chairman of the Supervisory Board

21 Share and shareholder information 77 Report of the Supervisory Board

85 Remuneration Report

100 Financial statements PHOTOGRAPHY AND IMAGES Wessel de Groot Fotografie Kendrion N.V. Shutterstock

A digital version of this Report is available on the websites www.kendrion.com and annualreport.kendrion.com along with other publications such as press releases.

CONTENTS Profile Strategy Report of the Executive Board Outlook Report of the Supervisory Board Financial statements PROFILE Annual Integrated Report 2020 5

Precision. Safety. Motion.

Engineering challenges of tomorrow

Kendrion has been engineering Our products can be found in cars, buses, trucks, airplanes, customised systems. As a technology pioneer and innovator, precision electromagnetic actuator medical equipment, elevators, wind turbines, robots, conveyor we are always in motion and committed to creating solutions systems and components for over belts, locking systems and countless other applications. Our for the engineering challenges of tomorrow. Taking broad reliable electromagnetic actuators for active damping systems, responsibility for how we source, manufacture and conduct a century. for example, are all about safety: they ensure a comfortable and business is integrated in our processes and embedded in our safe ride when driving a car. Our electromagnetic brakes culture. precisely stop and hold drive systems in position while ensuring safety and at the same time preventing damage. Rooted in Germany, headquartered in the Netherlands and listed on the Amsterdam stock exchange, our expertise Kendrion is the trusted partner of some of the world’s market extends across Europe to the Americas and Asia. leaders in the automotive and industrial segments when it comes to designing and producing complex components and

Contents PROFILEProfile Strategy Report of the Executive Board Outlook Report of the Supervisory Board Financial statements ORGANISATION Annual Integrated Report 2020 6

AUTOMOTIVE INDUSTRIAL

AUTOMOTIVE INDUSTRIAL INDUSTRIAL ACTUATORS AND CONTROLS BRAKES We develop innovative mobility solutions for passenger cars and commercial vehicles focused on drive systems, fluid control and smart We focus on customised solutions We are full-line provider of actuation technologies. for the industry based on electromagnetic brakes and electromagnetics, control clutches for industrial drive technology and fluid technology. technology.

Contents Profile Strategy Report of the Executive Board Outlook Report of the Supervisory Board Financial statements PREFACE Annual Integrated Report 2020 7

Progress during a tough year

The year 2020 was a year like no other. As COVID-19 swept Our production facilities in Suzhou and Shanghai were hit first. As the pandemic raged, we focussed on the short-term, while through the world, we faced a global health and economic And when Europe was affected, we implemented the Chinese not deviating from these long-term goals. We fully integrated crisis like never before. Our priorities were clear. Firstly, best practice health and safety measures in our facilities around INTORQ that we acquired in January 2020. We combined protecting the health and safety of our employees and their the world. This included temperature screening, mandatory our former Industrial Control Systems and Industrial Magnetic families. Secondly, preserving our cashflow and profitability. face masks, professional deep cleaning in-between shifts, Systems into one new business unit called Industrial I am proud of the entire Kendrion team who, throughout the re-arranging of production lines to create at least 1.5 m Actuators and Controls. In Automotive we added a gratifying year, have shown unparalleled commitment, flexibility, and distance and closure of all company cafeterias. Despite the EUR 350 million to our orderbook, 70% more than our 2020 resilience. We have withstood the crisis and look to 2021 with measures, the Kendrion community has had to deal with Automotive revenue. This means we expanded our orderbook confidence – with a strong and lean organization, a growing COVID-19 in almost all locations. Unfortunately, one of our for the third consecutive year. In China, our growth continued. orderbook and a healthy balance sheet. colleagues passed away from the disease. We have decided to build a 28,000 m2 plant in Suzhou to support our sizeable and expanding orderbook. We further A tough year, with a strong finish Financially, we applied strict cost measures in all locations and improved our IT infrastructure, which helped us stay connected As the crisis started in China in the first quarter of the year and functions. In both our direct and indirect workforce, we made as more and more of our indirect workforce worked from home. reached Europe and the US as early as March 2020, its impact use of so-called short time work arrangements as production We also launched our new website, our intranet, our digital on our physical well-being, profitability and cashflow was initially volumes dropped. We deferred any investments unrelated to newsletter and a digital personal development learning platform unclear. We took immediate and decisive measures to preserve safety or revenue generation. Most of our senior management for all employees. all three. agreed to a temporary salary reduction of 15% to help preserve cashflow. ‘The Kendrion Way’ comes to life We could not have come through 2020 the way we did, Despite our precautions, Q2 was a tough quarter. without our employees. Their compassion, trust in each other As automotive factories around the world shut down, our and commitment to our company is best exemplified in The revenue dropped considerably. The second half saw a gradual Kendrion Way. We acted as One Kendrion, a global team return to more normal activity and order levels. This, combined supporting one another and holding each other accountable in with our strict cost measures, resulted in an EBITDA for H2 a positive way. In the pressure cooker of 2020, The Kendrion that was 25% above the second half of 2019. Way, has become part of our Kendrion DNA and has truly come to life. Joep van Beurden Achieving our short- and long-term goals CEO On 10 September 2020, we introduced our medium to long- The COVID-19 pandemic is not over. It continues to impact term goals during our Capital Markets Day. We aim to grow how we live and work, but there is hope that during 2021 we organically by 5% per year on average between 2020 and may resume a more ‘normal’ working routine. We look to the 2025, taking 2019 and including INTORQ, as the starting point. future, and to achieving our goals, with confidence. We expect to have an EBITDA of at least 15% and a ROIC of at least 25% by 2025.

Contents Profile Strategy Report of the Executive Board Outlook Report of the Supervisory Board Financial statements FACTS AND FIGURES Annual Integrated Report 2020 8

396.4 3.9% 18.9 4% 11.7 7% 11.3% 0.7%

Revenue EBITA1 Net profit1 EBITDA margin1 (EUR million) (EUR million) (EUR million)

2019 412.4 20192 19.8 20192 12.6 20192 10.6%

10.8% 0.9% 31.5 23% 47.4% 9.3% 2.3 114%

ROI1,3 Free Solvency Net debt / (in %) cash flow1 EBITDA1 (EUR million)

20192 11.7% 2019 25.5 20192 56.7% 20192 1.1

1 Normalised for one off costs and amortisation of acquisition related intangibles (only net profit). 2 2019 restated for retrospective correction of inventory. The effects of the restatement can be found on pages 107 and 108 of the financial statements. 3 Invested capital excluding intangibles arising on acquisitions.

Contents Profile Strategy Report of the Executive Board Outlook Report of the Supervisory Board Financial statements FACTS AND FIGURES Annual Integrated Report 2020 9

6.1% 0.4% 2,456 50%/50% 4.4 5.3 384

Total number Total number Illness rate Accidents Lost Time of employees (FTE) of employees (in %) (per 1,000 Injuries (at 31 December) by gender FTE) (in days) (in % M vs F)

2019 2,316 2019 49%/51% 2019 4.8% 2019 6.9 2019 812

1.3% 3.2% 187.1 34.4 28 Please refer to the section

Relative energy Relative CO2 emission Number of ‘About the sustainability consumption (in tonnes CSR supplier report’ on pages 197 and (in tonnes kWh/million audits 198 of this Annual Integrated kWh/million added value) added value) Report for reporting periods, definitions, scope and limited 2019 189.4 2019 35.5 2019 35 assurance review.

Contents Profile Strategy Report of the Executive Board Outlook Report of the Supervisory Board Financial statements WORLD MAP Annual Integrated Report 2020 10

Revenue (in EUR million) segmented by customer location FTE segmented by region EUROPE

49% 51% 1,984 273.3 69% THE AMERICAS ASIA1

58.0 65.1 49% 51% 59% 41% 266 206 15% 16%

Kendrion business location

FINANCIAL RESULTS EUR million Revenue EBITA2 Net profit2 EBITDA2 % ROI3 Total FTE 396.4 18.9 11.7 11.3% 10.8% 2,456

1 Including other countries with revenue of EUR 2.1 million. 2 Excluding one-off costs. The bridge from reported to normalised figures can be found on page 31. 3 Invested capital excluding intangibles arising on acquisitions.

Contents Profile Strategy Report of the Executive Board Outlook Report of the Supervisory Board Financial statements STRATEGY AND FINANCIAL OBJECTIVES Annual Integrated Report 2020 11

Delivering profitable growth

As complexity drives costs and slows down decision making, Kendrion continues to focus on Our strategy sustaining a lean and agile organisation. Over the Kendrion will continue to focus its resources and capital on past years, Kendrion has significantly simplified the areas that offer the greatest opportunity for sustainable its organisation and reduced its cost base, profitable growth. In 2020, the designated areas for growth while continuing to invest in various growth were: opportunities, paving the way to sustainable ■ Automotive: specifically, in those actuators that help profitable growth. enable Autonomous, Connected, Electric and Shared mobility, also known as ‘ACES’; ■ Industrial brakes: especially in the market for wind power, robotics & automation and logistics; ■ China: where Kendrion has identified significant opportunities for its technology in a range of automotive and industrial applications.

We are confident that the strong pipeline development in these three growth areas will help deliver our financial target of 5% organic growth between 2019 and 2025.

Industrial Actuators and Controls cash engine. The priority of the newly created business unit is to realise profitability and cash flow and invest in The former business units Industrial Magnetic Systems selected growth opportunities in segments like inductive and Industrial Control Systems have been integrated into heating and industrial locks. Kendrion expects that IAC will a new business unit Industrial Actuators and Controls (IAC). generate sustainable, above average returns for the Within Kendrion’s strategic house IAC is referred to as the company.

Contents Profile STRATEGYStrategy Report of the Executive Board Outlook Report of the Supervisory Board Financial statements STRATEGY AND FINANCIAL OBJECTIVES Annual Integrated Report 2019 12

Automotive Industrial brakes China

The automotive industry is going through a fundamental In Industrial Brakes, Kendrion is investing in brakes suitable disruption driven by four mutually reinforcing trends: for three important growth segments. Firstly, the ongoing Autonomous driving, Connected vehicles, Electrification of the automation of global industrial manufacturing processes powertrain and Shared mobility, or ‘ACES’. Kendrion expects creates fast growth in the uptake of industrial and that, on aggregate, ACES will increase the actuator content collaborative robots across industries. Secondly, we per car and drive above-average growth. Kendrion believes anticipate continued fast-growing demand for brakes for that, after years of developing its smart actuation technology, wind turbines, as investments in green energy accelerates it is well positioned to benefit from these trends. across the world. And finally, in the internal logistics world where, for example, automated guided vehicles proliferate in increasingly automated warehouses for e-commerce deliveries. Kendrion has significantly increased its revenue and The acquisition of INTORQ that was completed on 8 January operation in China over the past five years and believes 2020, significantly enhanced Kendrion’s market position in that China represents a significant market opportunity industrial brakes. While Kendrion’s former business unit for future growth. Industrial Drives Systems is the market leader in the area of permanent magnet brakes, INTORQ is one of the market Despite the impact of COVID-19 predominantly in the first leaders for spring-applied brake technology. The combination quarter of 2020, our organic revenue in China grew with of INTORQ and Kendrion has created a leading industrial 5% fuelled by the substantial number of business wins in brake company with a full range of high-quality products in previous years. The former INTORQ activities in China Kendrion has created its so-called Lighthouse product an expanding number of growth markets in Europe, China, increased with 64% capitalising on government incentives platforms, specifically targeted to ACES. These platforms the US and India. for wind-power investments and further strengthening include systems and components for active suspension, AVAS Kendrion’s position in the country. Kendrion China systems for electric vehicles, sensor cleaning, battery cooling continued to win significant new businesses, which are and clutches for hybrid vehicles. In addition, Kendrion’s valve expected to drive the continuation of above average and actuator technology helps creating cleaner combustion growth in the coming years. engines and a safer and more comfortable driving experience. In order to grow its long-term revenues, Kendrion endeavours In order to accommodate the expected growth, to consistently add more lifetime revenue than its annual Kendrion has decided to build a new 28,000m2 revenues to its commercial pipeline. In 2020, Kendrion added production facility in Suzhou, more than doubling the EUR 350 million in lifetime revenues, which is a book-to-bill existing capacity. It is anticipated that Kendrion’s ratio of 1.7. Over the past three years, Kendrion added around operations in Suzhou and Shanghai will be integrated in EUR 900 million in lifetime revenue to its automotive pipeline. the new building in the first half of 2022.

Contents Profile STRATEGY Report of the Executive Board Outlook Report of the Supervisory Board Financial statements STRATEGY AND FINANCIAL OBJECTIVES Annual Integrated Report 2020 13

Financial targets

Against the backdrop of the impact of the COVID-19 pandemic Against the backdrop of the impact of the COVID-19 pandemic on end markets and economies in general, in 2020 revenue on its end-markets and economies in general, Kendrion stated decreased 4% and 17% excluding the impact of INTORQ. four ambitious medium to long-term financial objectives for Return on investment was 10.8% (2019: 11.7%). Kendrion 2025 during its Capital Markets Day on 10 September 2020: was able to increase its EBITDA margin to 11.3% (2019: 10.6%) despite the impact of the pandemic. ■ Average organic growth of 5% between 2019 and 2025 ■ Return on investment of at least 25% by 20251 In response to the difficult trading conditions, Kendrion ■ EBITDA margin of at least 15% by 20252 implemented short-time work in many of its European facilities, ■ Dividend pay-out: 35-50% of (normalised) net profit introduced a voluntary temporary 15% salary reduction for senior management, significantly reduced discretionary During 2020, Kendrion has made good progress on its strategy spending and deferred investments unrelated to safety or and is confident that it is in an excellent position to deliver these revenue generation. The total effect of the measures has led ambitious targets in 2025. to EUR 19.6 million lower organic costs compared to the previous year.

Average Return on EBITDA margin2 Dividend pay-out organic growth investment1

TARGET 2019-2025 ACTUAL TARGET 2025 ACTUAL TARGET 2025 ACTUAL TARGET ACTUAL 5% -17% 25% 10.8% 15% 11.3% 35-50% 50%

1 Invested capital excluding intangibles arising on acquisitions. 2 Excluding one-off costs. The bridge from reported to normalised figures can be found on page 31.

Contents Profile STRATEGY Report of the Executive Board Outlook Report of the Supervisory Board Financial statements LIGHTHOUSE PLATFORMS Annual Integrated Report 2020 14

No business sector has been immune to the COVID that help advance the implementation of Autonomous, pandemic, including our key markets within Automotive Connected, Electrified and Shared vehicles (ACES) and and Industrial. OEMs in both sectors felt the impact on the markets for Robotics and Automation. These operations and slowed down their activity level affecting markets offer significant growth potential for our Driving some of their R&D efforts and market introductions. business in the medium to long term. While this caused a considerable drop in our revenue, especially in Q2 of 2020, it did not compromise the And while the pandemic disrupted our R&D, sourcing, progress we made towards our strategy and our and production efforts, we did make substantial innovation medium- term financial targets. progress on some of our innovations, moving them from customer-specific prototypes to serial production. We continued to invest in the ‘Lighthouse platforms’ Here is an update on each platform. that we identified in 2019: six cutting-edge products

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Sharpening our differentiators in ‘ADAS Wash’

While the market expected investments in In 2020, our ‘ADAS Wash’ system generated interest software-defined vehicles (SDVs) and autonomous from various OEMs. We tested our system in several driving solutions to drop in 2020, we did not vehicles and the results were positive. We also took the experience this as such. and have made significant first steps towards building a partner ecosystem and headway in defining our ‘ADAS Wash’ product in product platform. This will enable us to develop this promising market. market-ready-for-use ‘ADAS wash’ solutions and become a major player in the next generation of self- Kendrion’s innovative ‘ADAS Wash’ smart valve block driving robo-taxis. We see great potential for us in this platform for sensor cleaning is an industry-leading area, especially in China, where these vehicles are customer solution. It distributes cleaning fluid and air to a practical reality today. all relevant systems, including optical sensors, LiDAR, and cameras. Integrated electronics enable smart Kendrion’s smart valve block platform for sensor features for position detection, smart selection of cleaning is the leading solution for SDVs today. We are operation modes, and effective status reporting. Key confident that we can capture a substantial market markets for ‘ADAS Wash’ are level 4 (high driving) and share once demand for SDVs and autonomous driving level 5 (full driving) vehicles, and robo-taxis. solutions picks up again.

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AVAS: winning a new global OEM customer

In 2020, the market for hybrid and battery-electric With our ‘Phantone’ Sound Platform, we are the first vehicles (BEV) continued to grow, and with it the on the market to offer a complete, ready-to-use and need for Acoustic Vehicle Alerting Systems (AVAS). customizable AVAS solution which can be easily In the EU and the US, AVAS systems are a legal programmed and built into manufacturers’ vehicle requirement for new models of BEVs. These designs. vehicles are obliged to generate a specific sound level when travelling below 20 kilometres per hour, In the coming year, we aim to land at least one or when reversing. additional large OEM nomination, possibly in China. At the same time, we are developing a system that is Our AVAS sound solution based on our ‘Phantone’ suitable for BEV start-ups, as well as more established Sound Platform is a clear winner in this growing OEMs. To support our growth, we are setting up a new market. In 2020, we attracted a major, global OEM software environment that will allow us to standardize who was not yet on our customer list, and we expect ‘Phantone’ while providing full software-based flexibility our AVAS business to grow substantially over the next to a larger customer base. couple of years. By 2027, some 12.5 million AVAS sound systems are expected to be on the road worldwide. We see great potential for our integrated system solution, as the market continues to expand.

Contents Profile Strategy Report of the Executive Board Outlook Report of the Supervisory Board Financial statements LIGHTHOUSE PLATFORMS Annual Integrated Report 2020 17

Off-highway hybrid clutch: a shifting market

Manufacturers of ‘off-highway’ vehicles such as Following outstanding test results with the first wheel loaders and excavators are increasingly customer-designed hybrid clutch prototype in 2019, making the shift to hybrid technology because of we planned to start serial production in 2020. its clear benefits: reduced operational costs, Unfortunately, due to COVID-19, our key customers greater productivity, and a smaller ecological postponed their R&D efforts and production. When footprint. However, in 2020, the COVID pandemic they resume activities in 2021, we expect to secure stalled development, production, and sales of a number of nominations. hybrid off-highway equipment, for the market in general and thus for Kendrion. The off-highway vehicle market is potentially a large market for our hybrid technology. We expect demand Kendrion’s electromagnetic clutches contribute to to increase considerably over the next 10 years. increased fuel efficiency. When used on parallel hybrid As construction equipment technology has a longer applications, they support a reduction of fuel lifetime potential than passenger cars, we are confident consumption by up to 20 percent, while electric energy that our clutches will bring a good long-term return on generated from braking is recuperated for later use. our R&D investment. Our clutches have proven their value in airport vehicles for over a decade and are suitable for vehicles ranging from mild hybrid (48-volt) to full battery-electric power.

Contents Profile Strategy Report of the Executive Board Outlook Report of the Supervisory Board Financial statements LIGHTHOUSE PLATFORMS Annual Integrated Report 2020 18

Valves for active suspension systems: winning new business

Demand for active suspension systems in This past year, we have seen great traction for our passenger cars, off-road SUVs, and autonomous active damping valves. Our major Tier 1 suspension vehicles is on the rise which is good news for us. manufacturing customer has been successful selling to In 2020, our air-spring valves began to be premium car OEMs, and other Tier 1 manufacturers integrated in suspension systems for premium- secured business with various OEMs. From 2022 range passenger cars. We won projects with onwards, we expect orders from sub-premium car existing and new customers and, with that, brands, which will boost our success in this segment substantial business. further.

Active suspension systems help OEMs improve the In 2021, we expect to work on developing a standard comfort, safety and driving dynamics of their vehicles. product platform that will enable us to produce high But this technology is a new frontier to many car volumes and introduce multiple product variants suspension manufacturers. Kendrion’s air-spring valves quicker, and with less R&D effort. We will focus on provide them with a high-tech product that can be three areas of opportunity: expanding our new easily integrated into the suspension system quickly standard valve platform globally, entering the Chinese and without major investments in R&D. market and growing our sales volume with existing customers.

Contents Profile Strategy Report of the Executive Board Outlook Report of the Supervisory Board Financial statements LIGHTHOUSE PLATFORMS Annual Integrated Report 2020 19

Smart water valve: first premium electric car integration

As global auto sales dropped during the COVID-19 In 2021, we will focus on developing additional product crisis, electric mobility remained remarkably specifications and improved manufacturing processes resilient in Europe and China. For engineers that will allow us to scale production. We received the developing battery electric vehicles (BEVs), heating first product nominations for our 3/3 smart valve and and cooling of the battery is top of mind. In 2020, anticipate starting serial production in 2022. China in we successfully integrated our new smart water particular offers us a lot of potential. valve in a premium electric car model range of a leading OEM. Our 3/3 smart water valve with ECU takes us into a new league - of innovation, competitors and Kendrion’s 3/3 smart water valve with ECU provides customers. We foresee smart water valves will become a single solution for thermal battery challenges. a major pillar of revenue for Kendrion. The valve distributes coolant flows, helping maintain the battery cell temperature within a few degrees across the entire pack. The ECU monitors the valve to detect any battery error and communicate back to the central control unit before the error becomes an expensive problem or worse, a safety hazard.

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Servo Slim Line brake: small brake, big opportunities

The global robotics market grew in 2020: a trend new customers. Some of these should scale up in that is expected to continue in the coming years. the near future. For example, in May 2021, we start In fact, new sectors are adopting robot technology mass production of Slim Line brakes for a new every year. And while our Servo Slim Line brakes warehousing customer in the US. We expect to ramp were specifically developed for collaborative robots up exponentially with this customer over the next few or ‘cobots’, they have also attracted strong interest years. from robotics OEMs, for an increasing variety of applications. As mentioned, the appeal of the Servo Line and Servo Slim Line brakes goes further than just cobots. Flatter and lighter than the market standard, our We were delighted by the interest from OEMs for ‘slim’, single-disc Servo Slim Line brakes enable service robots, medical applications, warehousing manufacturers to keep designs compact yet safe, solutions, automated guided vehicles (AGVs), farming for robots with lifting capacities between 3 and 20 equipment, and more. Thanks to the growing scope of kilograms. The unique large inner diameter design lets applications, and our design platform approach, we are manufacturers integrate cables inside the brake, confident the demand for our Servo Line and Slim Line making them ideal for hollow-shaft applications. brakes will grow substantially over the coming years.

Over the past two years, our Servo Slim Line brake and Servo Line brakes have become a great success for Kendrion, with over 20 design-in nominations - all with

Contents Profile Strategy Report of the Executive Board Outlook Report of the Supervisory Board Financial statements SHARE AND SHAREHOLDER INFORMATION Annual Integrated Report 2020 21

Shares entitled Shares owned Total number of Movements in the number of outstanding shares to dividend by Kendrion issued shares Share capital At 1 January 2020 14,753,533 180,451 14,933,984 The authorised share capital of Kendrion N.V. as at Issued registered shares (share plan) 2,654 (2,654) – 31 December 2020 amounts to EUR 80,000,000 and is Delivered shares 10,294 (10,294) – divided into 40,000,000 ordinary shares with a nominal value of At 31 December 2020 14,766,481 167,503 14,933,984 EUR 2.00 each. At year-end 2020, the total number of ordinary shares issued was 14,933,984. There is one class of ordinary Other information shares and no depositary receipts for shares have been issued. EUR, unless otherwise stated 2020 2019² 2018 Kendrion’s ordinary shares are listed on NYSE Euronext Number of shares x 1,000 at 31 December 14,934 14,934 13,575 Amsterdam Small Cap Index (AScX). Market capitalisation at 31 December (EUR million) 247.9 312.9 283.7 Enterprise value (EV) (EUR million) 351.1 360.3 364.2 Movements in the share price Highest share price in the financial year 21.35 23.60 44.35 from 2 January 2020 to 31 December 2020 Lowest share price in the financial year 8.63 15.62 20.30 Kendrion N.V. share AEX Share price on 31 December 16.60 20.95 20.90 ASCX AMX Average daily ordinary share volume 24,203 15,959 21,899 20 Index EBITDA multiple (EV / EBITDA)1 7.86 8.22 6.23 Result per share 0.29 0.61 1.03 10 Normalised result per share1 0.79 0.94 1.69 0 1 Share price earnings ratio 21.01 22.29 12.39 -10

-20 Major shareholders as at 31 December 20203 Interest in % Date of report Teslin Participaties Coöperatief U.A. 15.14 At 14 June 2019 -30 NN Group N.V. 9.96 At 20 June 2019 -40 Kempen Capital Management N.V. 10.07 At 26 May 2020 -50 Cross Options Beheer B.V. 5.37 At 8 May 2017 -60 T. Rowe Price Group, Inc. 4.97 At 5 May 2017 2 January 2020 31 December 2020 FIL Limited 5.00 At 1 October 2019 Invesco Limited 5.42 At 15 May 2020 Midlin N.V. 3.08 At 11 December 2020 Total 59.01%

1 Excluding one-off costs and amortisation of intangibles arising from acquisitions. The bridge from reported to normalised figures can be found on page 31. 2 Restated for retrospective correction of inventory. The effects of the restatement can be found on pages 151-160 of the financial statements. 3 On the basis of the information in the register of the AFM and listed on the website at www.afm.nl.

Contents Profile Strategy Report of the Executive Board Outlook Report of the Supervisory Board Financial statements SHARE AND SHAREHOLDER INFORMATION Annual Integrated Report 2020 22

Treasury shares given to the amount of profit to be retained to support the is EUR 5.9 million. It will be proposed that payment of the As at 31 December 2020, Kendrion N.V. holds 167,503 company’s medium and long-term strategic plans and to dividend be made in cash, or at the option of shareholders, ordinary shares in its own capital, representing 1.1% of the total maintaining a solvency ratio of at least 35%. Kendrion strives to in the form of ordinary shares charged to the share premium issued share capital. The ordinary shares held by Kendrion N.V. distribute dividends representing between 35% and 50% of its reserve with any remaining fraction being settled in cash. in its own capital are non-voting, do not have any dividend net profit. entitlement, and are held in treasury for payment of future stock Major shareholders dividends and share-based incentive plans. This means that as In principle, Kendrion offers shareholders an opportunity to opt Any person holding or acquiring an interest of 3% or more in a per year-end 2020, 14,766,481 ordinary shares hold voting for dividends in cash or in the form of ordinary shares in Dutch publicly listed company is bound, based on the Financial rights and dividend entitlement. Kendrion N.V.’s capital. Supervision Act (Wet op het Financieel Toezicht), to disclose such a holding to the Dutch Authority for the Financial Markets Dividend policy Kendrion will propose a dividend of EUR 0.40 per share, (AFM). The disclosure is recorded in the register of the AFM and Kendrion endeavours to realise an attractive return for representing a payment of dividend of 50% of normalised listed on the website at https://www.afm.nl/en. shareholders supported by a suitable dividend policy. In view of net profit for 2020 at the Annual General Meeting of safeguarding a healthy financial position, consideration is also Shareholders on 12 April 2021. The total amount of dividend Participation Kendrion maintains a share-based incentive plan for its senior management and certain key employees. Up to 2018, senior management and certain key employees were eligible to apply for the conversion of a maximum of half of the cash amount of their annual net cash bonus into Kendrion shares. Under this share-based incentive plan, Kendrion offered to double the number of shares after three years, provided the participant concerned is still employed by Kendrion and still holds the shares purchased. Pursuant to this share-based incentive plan, a total of 2,654 ordinary shares were allocated to employees from the balance of treasury shares in 2020.

Capital Markets Day 2020

On 10 September 2020, CEO Joep van Beurden, CFO Jeroen Hemmen and our Automotive and Industrial Brakes Business Units Managers presented a comprehensive strategic update and new medium-term financial targets to the financial market.

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Effective as of 2019, members of the Management Team are the Executive Board is set out on page 150. A comprehensive Investor relations eligible for a grant of conditional performance shares. In 2020, description of the long-term incentive plan is included in the Kendrion attaches great importance to appropriate 28,380 conditional performance shares were granted to the ‘Remuneration Report’ section on pages 85-99. communications with financial stakeholders such as investors, Management Team under this long-term incentive plan. The debt capital providers and analysts to provide them with good conditional performance shares granted will vest upon Regulations to prevent insider trading insight into the developments at Kendrion. Transparency is achievement of performance measured over a three-year Kendrion has regulations covering securities transactions by intended to lead to healthy pricing, and to support liquidity. period. The actual number of shares that will be issued upon members of the Executive Board, members of the Supervisory expiry of the three-year vesting period is subject to the Board, members of the Management Team and other realisation of predefined performance criteria. designated employees. The Insider Trading Code is published on the corporate website at https://www.kendrion.com. The In 2020, conditional performance shares have been granted to Insider Trading Code is intended to ensure the avoidance of the members of the Executive Board pursuant to the Executive insider trading or the appearance thereof, and any mixing of Board long-term incentive plan. More information about business and private interests. (conditional performance) shares granted to the members of

Analysts The following stock exchange analysts actively monitor the Kendrion share: Berenberg Beatrice Allen Degroof Petercam Frank Claassen ING Bank N.V. Tijs Hollestelle The Idea-Driven Equities Analyses Company Maarten Verbeek

Financial calendar Friday, 19 February 2021 Publication annual results 2020 Monday, 15 March 2021 Record date General Meeting of Shareholders Monday, 12 April 2021 General Meeting of Shareholders Wednesday, 14 April 2021 Ex-dividend date Thursday, 15 April 2021 Dividend record date Friday, 16 April – Monday, 3 May 2021, 3 pm Dividend election period (stock and/or cash) Tuesday, 4 May 2021 Determination stock dividend exchange ratio Tuesday, 4 May 2021 Publication first quarter results 2021 Thursday, 6 May 2021 Cash dividend made payable and delivery stock dividend Wednesday, 25 August 2021 Publication half-year results 2021 Tuesday, 2 November 2021 Publication third quarter results 2021

Contents Profile Strategy Report of the Executive Board Outlook Report of the Supervisory Board Financial statements MEMBERS OF THE EXECUTIVE BOARD Annual Integrated Report 2020 24

J. H. Hemmen J.A.J. van Beurden Position Chief Financial Officer Position Chief Executive Officer

Year of birth 1973 Year of birth 1960 Nationality Dutch Nationality Dutch Joined Kendrion 1 June 2005 Appointment to position 1 December 2015 Appointment to position 1 July 2019 (EGM 7 June 2019) Second term 1 December 2019 – 1 December 2023 (AGM 8 April 2019) Member of the Supervisory Board of Adyen Member of the Supervisory Board of the University of Twente Member of the Board of Advice of PlantLab

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Automotive activities Annual Integrated Report 2020 25

Innovative mobility solutions for passenger cars and WHERE OUR PRODUCTS OUR CUSTOMERS INCLUDE commercial vehicles focused on drive systems, fluid ARE USED Continental control and smart actuation technologies. Active suspension systems Daimler Group Belt damping systems Danfoss Engine brakes Delphi Engine management FCA Fuel systems Ford Hydraulics Great Wall Motors Acoustic vehicle alerting systems Hyundai Kia Thermal management KYB Sensor cleaning systems Stanadyne Transmission ThyssenKrupp Bilstein Volkswagen Group ZF Friedrichshafen

Kendrion locations with regional revenue breakdown TOTAL AUTOMOTIVE REVENUE (in EUR)

206.1 million 2019 258.8 million Asia and The Americas Rest of the world Europe 22% 67% 11%

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Capitalising on the new trends

Profile Market and market position

The Kendrion Automotive Group (KAG) develops, manufactures Kendrion is focusing on several important global trends towards and markets innovative high-quality electromagnetic improved efficiency of traditional combustion engines, electric components and solutions as well as control units for or hybrid power trains, automation and the demand for safety customers in the automotive industry worldwide. Customers and comfort. Kendrion is specifically investing its resources in include major OEMs and Tier 1 suppliers in the global markets developing products that help the transformation of the product for passenger cars, light commercial vehicles, buses, heavy portfolio towards the Autonomous, Connected, Electric and trucks, construction and agricultural vehicles. Shared mobility, known as ‘ACES’. By 2025, 40% of cars sold are expected to by either fully electric or hybrid and 90% of Automotive focuses on advanced valve technology, smart cars are expected to be equipped with level 3 autonomous actuation and electromagnetic clutch technology for a wide driving technology. Driven by these trends, the automobile is range of application areas. These include active suspension evolving from a mechanical defined to a software-defined systems, thermal management systems, fuel systems, acoustic product. With our technology platforms and focus on smart vehicle alerting systems, sensor cleaning systems, transmission actuation, Kendrion is well positioned to capitalise on these systems and mobile hydraulics. trends, which will contribute, in our expectation, to an increased content per car for our products. Kendrion is recognised as a high-quality and trusted development and engineering partner with in-depth technical The Kendrion Automotive Group competes in a market with knowledge and access to development, testing and production a number of, mainly German based, mid-sized competitors. facilities. Kendrion has an international network and eight Europe continues to be Kendrion’s largest automotive market, manufacturing facilities in Germany, Austria, Romania, Czech with Germany being the predominant country within this Republic, the US and China. Products are developed and market. Kendrion’s position in China improved further, with designed in accordance with the customer’s specific needs, the company adding several new project wins. placing great emphasis on performance, quality and reliability.

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Developments in 2020 Automotive continues to streamline operations. Based on an evaluation of its European manufacturing footprint, it has been Revenue for the Kendrion Automotive Group amounted to decided to close the manufacturing facility in Eibiswald, Austria, EUR 206.1 million in 2020 (2019: EUR 258.8 million). per mid-2022. At year-end 2020 Eibiswald employed 87 FTE, Automotive revenue was impacted by the COVID-19 pandemic, of which around half working directly in production. initially affecting revenue in China but spreading out to Europe All production lines will be transferred to other Kendrion and the US in late March with many Automotive customers facilities over the next year and a half. The EUR 3 million annual shutting down their operations during the months April and structural cost savings in Automotive that were realised towards May. Revenue gradually recovered in the second half of 2020, the end of 2019 have been fully effective in the financial year albeit still below the pre-COVID level. 2020.

Automotive added EUR 350 million (2019: EUR 320 million) in lifetime revenue to its long-term order book, indicating a positive book-to-bill of 1.7 times 2020 serial revenue. Project wins were wide ranging and include valves and control units for active suspension systems and acoustic vehicle alerting systems for passenger cars and thermal management systems and positioning sensors for commercial vehicle end customers.

The transformation of the production portfolio towards the Autonomous, Connected, Electric and Shared mobility, the ‘ACES’, continued in 2020 with increasing customer interest and business wins for the five identified so called ‘Lighthouse’ platforms. These include the battery cooling valve, AVAS sound system for hybrid and electric vehicles, a system for sensor cleaning, valves for active suspension damping and clutches for hybrid off-highway vehicles.

The transformation towards the ‘ACES’ expected to increase Kendrion’s content per car.

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INDUSTRIAL ACTUATORS AND CONTROLS WHERE OUR PRODUCTS ARE USED OUR CUSTOMERS INCLUDE Customised solutions for the industry based on Access control systems Bosch Rexroth electromagnetics, control technology and fluid Aircraft interiors Collins Aerospace technology. Elevator systems Dräger Energy generation and distribution Eaton Corporation INDUSTRIAL BRAKES Food and beverage industry Euchner Full-line provider of electromagnetic brakes and Industrial appliances Fresenius clutches for industrial drive systems. Industrial automation Lenze Intralogistics Oerlikon Medical equipment PerkinElmer Robotics Schindler Safety systems Siemens Textile machinery ST Drives Wind power Stoll

Kendrion locations with regional revenue breakdown

TOTAL INDUSTRIAL REVENUE (in EUR)

190.3 million Asia and Rest of the world 2019 153.6 million The Americas Europe 6% 71% 23%

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Combining businesses for further growth

Profile Market and market position

The industrial activities focus on developing and manufacturing Industrial Actuators and Controls (IAC) serves a large number electromagnetic systems and components and control units of industrial end markets including aerospace, railway, energy for a wide range of industrial applications such as industrial distribution, medical equipment, industrial appliances, logistics, automation, robotics, wind power, intralogistics, energy access control, food & beverage machinery and textile distribution, medical equipment, transportation and aerospace. machinery. Although some niches, such as inductive heating and energy distribution, offer good growth potential, IAC The industrial activities are carried out in two business units: prioritises above average profitability and cash flow. Industrial Actuators and Controls and Industrial Brakes. Industrial Actuators and Controls focuses on the development Industrial Brakes serves a number of markets that are expected and production of customised electromagnetic actuator to offer above average opportunities for growth, including technology, gas and fluid control valves and systems and industrial automation and more specifically robotics, wind control technology. Industrial Brakes specialises in the power and intralogistics. development and manufacture of electromagnetic brakes and clutches. Kendrion competes in a market with many small and mid-sized producers, which often have a regional focus. The main market The main differentiators are application expertise and for the industrial activities continues to be Germany, with its engineering skills to design high-performance products of advanced and globally leading mechanical engineering and unparalleled quality. Besides the customer-specific systems and automation industries, followed by China. Other key markets components, the industrial portfolio comprises standard and are the US, Switzerland, Austria, Italy, France and Sweden. application-specific components. The largest industrial Customer concentration is relatively low. production facilities are located in Germany, with further facilities in China, the US, India and Romania. Products are marketed via an own sales organisation in Germany, the UK, Austria, Sweden, China and the US. A worldwide sales distribution network is dedicated to standard and application- specific components.

Contents Profile Strategy REPORT OF THE EXECUTIVE BOARD Outlook Report of the Supervisory Board Financial statements INDUSTRIAL ACTIVITIES Annual Integrated Report 2020 30

Developments in 2020 On 8 January 2020, Kendrion closed the acquisition of INTORQ, a leading manufacturer of spring-applied brakes with Industrial activities realised revenue of EUR 190.3 million in production sites in Aerzen (Germany), Shanghai (China), Atlanta 2020 (2019: EUR 153.6 million). 2020 revenue includes the (the US) and Pune (India). In 2020, Kendrion has successfully acquisition of INTORQ, which closed on 8 January 2020 and integrated INTORQ with the former Kendrion business unit has strengthened Kendrion’s position in the industrial brakes Industrial Drive Systems, creating a leading industrial brake market. INTORQ contributed EUR 54 million revenue in 2020. company with a full range of high-quality brakes in an The Industrial activities were affected by the COVID-19 expanded number of growth markets in Europe, China, the pandemic induced economic downturn, which started to US and India. The general economic downturn caused by negatively impact Industrial revenue in May. Revenue recovered the COVID-19 pandemic affected Industrial Brakes customers in the latter part of 2020 with the industrial activities reporting globally, but the business unit did benefit from high demand for year-on-year organic growth in the fourth quarter of 2020. its wind power applications in China on the back of government subsidies, has won sizeable new business in intralogistics and In 2020, Kendrion has merged its former business units continued to receive high interest for its slim brake line for Industrial Magnetic Systems and Industrial Controls Systems collaborative robots. The run rate synergies realised in Industrial into a single business unit Industrial Actuators and Controls. Brakes was EUR 2.8 million and included the integration of The merger became effective as of 1 January 2020 and Kendrion’s and INTORQ’s production sites in Aerzen in the besides realizing cost synergies, the combination is expected fourth quarter of 2020, integrating the business unit and China to increase commercial effectiveness via a common market management teams, as well as purchase savings realised. approach. In 2020, IAC realised new revenues with a number of customers with newly developed technologies for inductive heating, safety FIO and standard locks for professional appliances. Revenue in IAC was affected by lower activity levels in aerospace, machine safety and textile machinery, while other segments such as medical performed well in 2020. High demand in medical was partially driven by a COVID-19 related surge in demand for IAC valves used in ventilators.

The acquisition of INTORQ has strengthened Kendrion’s position in the industrial brakes market.

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Normalisation impact A total of EUR 4.4 million (2019: EUR 5.7 million) operating Net finance costs have been normalised for EUR 0.6 million expenses have been normalised. This breaks down into additional interest related to the expected outcome of German During 2020, Kendrion has incurred various costs and benefits EUR 0.6 million transaction costs related to the acquisition of tax audits covering the financial years 2010 – 2014 and the that are considered non-recurring. In order to present a INTORQ, EUR 0.8 million costs related to the integration of expected impact on the years thereafter. The total after-tax meaningful analysis of the underlying financial performance of INTORQ and the realization of cost synergies, EUR 1.4 million normalisation amounted to EUR 4.1 million the business, the financial results have been normalised for net restructuring expenses and a EUR 1.6 million impairment (2019: EUR 2.7 million). these non-recurring costs and benefits. charge related to previously capitalised development costs.

Normalisation impact Income Statement, normalised

EUR million 2020 2019¹ EUR million 2020 2019¹ Reported result before net finance costs 10.1 11.9 Revenue 396.4 412.4 Reported amortisation 4.4 2.2 Reported operating result before amortisation (EBITA) 14.5 14.1 Changes in inventory and work in progress 2.2 4.4 Raw materials and subcontracted work 203.2 214.7 One-off costs related to simplifying measures in raw materials - (0.1) Added value 191.0 193.3 One-off costs related to simplifying measures in staff costs 1.5 2.9 One-off costs related to simplifying measures in other operating expenses 0.7 0.1 Staff costs 118.0 121.7 One-off costs related to acquisition costs in other operating expenses 0.6 1.2 Other operating expenses 28.4 27.8 One-off costs related to claim settlement in other operating expenses - 1.6 Operating expenses 146.4 149.5 One-off costs related to impairment capitalized R&D 1,6 - EBITDA 44.6 43.8 Normalised EBITA 18.9 19.8 Depreciation 25.7 24.0 Reported amortisation (4.4) (2.2) EBITA 18.9 19.8 Reported net finance costs (4.1) (0.6) One-off costs related to tax audits in finance expense 0.6 0.1 Added value margin 48.5% 47.4% One-off costs related to acquisition costs in finance expense 0.0 - EBITDA margin 11.3% 10.6% One-off gains related to release of currency translation reserve - (2.0) EBITA margin 4.8% 4.8% Reported share profit or loss of an associate (0.3) (0.3) EBITA return on investments (ROI)2 10.8% 11.7% Normalised profit before income tax 10.7 14.8

Reported income tax expense (1.4) (2.7) 1 2019 restated for retrospective correction of inventory. The effects of the restatement One-off costs related to tax audits in income tax expense - 0.4 can be found on pages 107 and 108 of the financial statements. One-off costs related to simplifying measures in income tax expenses 0.2 - 2 Invested capital excluding intangibles arising on acquisitions. Impact one-off costs on income tax expense (1.1) (1.5) Amortisation after tax 3.3 1.6 Normalised net profit for the period before amortisation 11.7 12.6

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Revenue offset by the consolidation of INTORQ and a EUR 2.2 million capitalised on the balance sheet (2019: EUR 3.1 million). lower reduction in finished goods and work in progress inventory. Net costs for research & development as a percentage of At group level, organic revenue decreased 17% in 2020 as The added value margin increased 1.1 percentage points to revenue was 7.1% (2019: 6.0%). the surging COVID-19 pandemic affected economies and end 48,5% in 2020, which is mainly caused by the increased share of markets around the globe. Starting with lower activity levels in the Industrial business units in group revenue. The added value Normalised operating expenses China in the first months of 2020, the revenue impact of the margin in the Automotive Group and the Industrial business units EUR million 2020 2019 pandemic quickly spread to Europe and the US toward the end slightly improved in 2020. Staff costs 118.0 121.7 of the first quarter with many Automotive customers shutting Other operating expenses 28.4 27.8 down their operations. The pandemic affected the Industrial Depreciation of fixed assets 25.7 24.0 activities as well, albeit with some delay and with a comparably Operating expenses Operating expenses 172.1 173.5 lower impact than in Automotive. From the depth of the economic crisis in the second quarter, end markets showed Normalised staff costs decreased 3% to EUR 118.0 million resilience and gradually rebounded in the second half of the (2019: EUR 121.7 million) in 2020. Organic staff costs FTE (at 31 December) 2020 2019 year with the Industrial activities and passenger car related decreased 13% or EUR 15.8 million in 2020 with many of our Direct staff 1,214 1,205 segments in Automotive delivering year-on-year growth in manufacturing locations implementing short-time work, Indirect staff 1,100 1,048 the last months of the year. Group revenue decreased 4% a voluntary 15% salary reduction by senior management and Temporary employees 142 63 to EUR 396.4 million (2019: EUR 412.4 million), including a reduction in flexible labour in response to the COVID-19 Total number of FTE 2,456 2,316 EUR 54.0 million revenue from INTORQ. Currency effects pandemic, as well as restructuring measures all contributing to had a negative impact of 0.3% on revenue. the lower cost base. Staff costs for direct employees decreased 16% on an organic basis, while indirect staff costs decreased EBITA Revenue of the Industrial business units increased 24% 23%. Total staff costs as a percentage of revenue was (2019: 7% decrease) to EUR 190.3 million. Excluding the 29.8% (2019: 29.5%). Normalised EBITA ended up at EUR 18.9 million contribution from INTORQ, organic revenue decreased 11%. (2019: EUR 19.8 million) and EBITA as a percentage of The Automotive Group revenue decreased 20% Normalised other operating expenses ended up at EUR 28.4 revenue was 4.8% (2019: 4.8%). (2019: 9% decrease) to EUR 206.1 million. Organic revenue million (2019: 27.8 million). On an organic basis, the other to customers in Europe and the Americas decreased operating expenses decreased EUR 3.8 million in 2020. Travel respectively with 18% and 24%, while revenue to customers and representation costs decreased as a result of COVID-19 Amortisation related to acquisitions in Asia increased 3% as the ramp-up of new projects more travel restrictions and strict cost control contributed to the than offset the impact of the COVID-19 pandemic. lower other operating expenses. Depreciation of fixed assets Acquisition related intangible assets are capitalised on was EUR 25.7 million (2019: EUR 24.0 million). Excluding the the balance sheet upon acquisition and reflect intangible added depreciation charges from INTORQ, depreciation of assets such as customer relations, technology and trade Added value fixed assets slightly decreased to EUR 23.8 million. names as allocated as part of the purchase price. The intangibles are amortised over a period of 1 to 15 years. The 2020 added value amounted to EUR 191.0 million Costs for research & development, included in staff and The amortisation charge in 2020 increased to EUR 4.4 million (2019: EUR 193.3 million). The organic revenue decrease had other operating expenses were EUR 28.9 million (2019: EUR 2.2 million) as the purchase price allocation of a negative impact on added value, which was almost completely (2019: EUR 27.1 million), of which EUR 0.7 million were the acquisition of INTORQ added to the amortisation charge.

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Net financing costs (2019: 26.1%). Previously unrecognized carry forward tax Net income losses and the higher valuation of the Dutch tax losses as EUR million 2020 2019¹ Normalised net financing costs in 2020 were EUR 3.5 million a result of the higher CIT rate, contributed to the reduction Reported net income for (2019: EUR 2.5 million). Net financing costs include net interest in the normalised effective income tax rate. holders of ordinary shares 4.3 8.3 expense on Kendrion’s debt position, the amortisation of transaction costs and realised and unrealised foreign currency The reported tax rate in 2020 was 24.6% compared to 25.0% Restructuring and other one-off results on monetary assets and liabilities. The increase in in 2019. costs 5.2 4.2 financing costs were attributable to higher average (gross) debt Tax effect on one-off costs (1.1) (1.5) levels caused by the funding of the acquisition of INTORQ, More information on the effective tax rate can be found on Amortisation after tax 3.3 1.6 a slightly higher average interest mark-up and EUR 0.3 million page 168 of the financial statements. Normalised net income for higher unfavourable currency results. Average (gross) debt holders of ordinary shares 11.7 12.6 levels, before deduction of cash and deposits, amounted to EUR 132 million including lease liabilities in 2020 Net income, earnings per share and dividend Normalised basic earnings per (2019: EUR 90 million). The average interest charge on share (EPS) (EUR) 0.79 0.94 borrowings in 2020 was 1.4% (2019: 1.3%). Normalised net income is adjusted for the net of tax impact of normalised one-off cost items and acquisition related ¹ 2019 restated for retrospective correction of inventory. The effects More information on available credit lines and conditions can amortisation charges. Normalised income amounted to of the restatement can be found on pages 107 and 108 of the be found on pages 144-145 of the financial statements. EUR 11.7 million in 2020 (2019: EUR 12.6 million). financial statements. The after-tax normalised costs amounted to EUR 4.1 million (2019: EUR 2.7 million) and the after-tax amortisation charge Share profit or loss of an associate was EUR 3.3 million (2019: EUR 1.6 million). Invested capital

In 2020, Kendrion realised a EUR 0.3 million loss Normalised basic earnings per share was EUR 0.79, compared Invested capital at 31 December 2020 was EUR 319.5 million (2019: EUR 0.3 million loss) on the 30% minority share in to EUR 0.94 in 2019. Basic reported earnings per share were (2019: 265.9 million). Invested capital related to operating Newton CFV, Inc., a US-based company for flow control EUR 0.29 (2019: EUR 0.61). activities, excluding goodwill and other intangibles arising valves for the food and beverage industry. on acquisitions, amounted to EUR 170.1 million Kendrion proposes an optional dividend of 50% of the (2019: EUR 162.1 million). Property plant and equipment, normalised net income, equivalent to EUR 0.40 per share goodwill and other intangible assets and net working capital are Income tax entitled to dividend. The EUR 0.25 dividend per ordinary share the main components of invested capital. The remaining part announced over financial year 2019 was withdrawn in 2020 as exists of other investments and capitalised contract costs. The The normalised income tax expense amounted to a precautionary measure to protect Kendrion’s financial position acquisition of INTORQ added EUR 30.3 million to the invested EUR 2.3 million in 2020 (2019: EUR 3.8 million). The considering the COVID-19 pandemic and its potential financial capital related to operating activities at the acquisition date and normalised effective income tax rate for 2020 was 22.0% impact. EUR 52.0 million in goodwill and other acquisition related

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intangibles. Excluding payables and provisions related EUR 2.0 million impairment charge. Deferred tax assets related to restructuring activities increased working capital, to one-off costs that have been normalised in the income increased EUR 4.7 million and contract costs and other which was partially offset by improved working capital statement, invested capital was EUR 323.7 million investments increased EUR 0.2 million during 2020. management. On an organic basis, working capital as a (2019: EUR 273.3 million). percentage of revenue decreased to 7.3% in 2020 as we further increased our focus on working capital to protect our Return on invested capital, as defined as normalised EBITA as Condensed consolidated statement of financial financial position and cash flow in light of the pandemic. a percentage of normalised invested capital excluding goodwill position and other acquisition related intangibles, was 10.8% When excluding the effect of provisions and payables that (2019: 11.7%). Assets relate to one-off costs items that have been normalised in the EUR million 2020 2019¹ income statement, net working capital as a percentage of Invested capital at 31 December Property, plant and equipment 118.7 111.4 revenue amounted to 10.4% (2019: 10.4%). EUR million 2020 2019¹ Intangible assets Property, plant and equipment 118.7 111.4 ■ Goodwill 116.0 92.6 The year-end provision for trade receivables amounted to Intangible assets 158.1 115.5 ■ Acquisition related 33.4 11.2 EUR 0.7 million (2019: EUR 0.5 million). The customer with the Net working capital 39.1 35.6 ■ Software 3.5 4.8 largest receivable outstanding accounted for 4% of the trade Other fixed assets 3.6 3.4 ■ Development costs 5.2 6.9 and other receivables at 31 December 2020 (2019: 8%). Invested capital 319.5 265.9 Other 3.6 3.4 Deferred income tax 19.2 14.5 Net working capital at 31 December Goodwill and other acquisition Non-current assets 299.6 244.8 EUR million 2020 2019¹ related intangibles 149.4 103.8 Inventories 61.7 55.4 Operating invested capital 170.1 162.1 Inventories 61.7 55.4 Trade and other receivables, tax Income tax 1.4 2.7 receivable 54.8 49.8 Trade and other receivables 53.4 47.1 Less: Trade and other payables, Non-current assets Cash 13.0 7.1 tax payables, current provisions 77.4 69.6 Current assets 129.5 112.3 Net working capital 39.1 35.6 As per 31 December 2020, non-current assets amounted to Balance sheet total 429.1 357.1 EUR 299.6 million (31 December 2019: EUR 244.8 million). As % of revenue 9.9% 8.6% Property plant and equipment was EUR 118.7 million (2019: EUR 111.4 million). The acquisition of INTORQ added Working capital EUR 15.9 million and organically property, plant and equipment ¹ 2019 restated for retrospective correction of inventory. The effects decreased EUR 8.6 million as deprecation exceeded capital Net working capital at 31 December 2020 was of the restatement can be found on pages 107 and 108 of the investments. Intangible assets increased EUR 42.6 million in EUR 39.1 million (2019: EUR 35.6 million). INTORQ added financial statements. 2020. EUR 52.5 million added intangibles caused by the EUR 13.9 million working capital at the acquisition date. acquisition of INTORQ was partially offset by EUR 4.4 million Working capital as a percentage of revenue increased to 9.9% amortisation charges, EUR 3.0 million lower capitalised (2019: 8.6%). The higher share in group revenue of the software and development costs in part caused by a Industrial business units and lower provisions and liabilities

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Net debt Net interest-bearing debt at 31 December was caused by lower working capital requirements and cash EUR million 2020 2019¹ investments, which ended EUR 9.2 million below depreciation. Net debt, including IFRS 16 lease liabilities, increased by Non-current borrowings 103.4 47.3 Normalised EBITDA and impairment charges contributed EUR 55.8 million to EUR 103.2 million in 2020. The acquisition Non-current mortgage loan 0.8 1.6 EUR 45.0 million to the cash flow, normalised working capital of INTORQ, which was completed on 8 January 2020, Current borrowings and requirements resulted in an inflow of EUR 7.4 million, capital increased net debt with EUR 77.7 million. Normalised free overdraft 12.0 5.6 investments resulted in an outflow of EUR 16.5 million and cash flow before acquisitions reduced net debt with Less: Cash and interest and tax payments amounted to EUR 4.4 million. EUR 31.5 million, which is partially offset by EUR 6.2 million cash equivalents 13.0 7.1 cash impact of items that have been normalised as one-off Net bank debt For more details on cash flow, see the ‘consolidated statement costs in the income statement and EUR 2.9 million payments at 31 December 103.2 47.4 of cash flows’ in the financial statements on page 105 of this for lease liabilities. Annual Integrated Report. EBITDA (normalised) 44.6 43.8 The leverage ratio (net debt divided by 12 months EBITDA) Debt cover 2.3 1.1 Normalised free cash flow as defined in Kendrion’s EUR 150 million facility agreement EUR million 2020 2019 was 2.3 as per 31 December 2020 (2019: 1.1). The facility ¹ 2019 restated for retrospective correction of inventory. The effects Reported free cash flow (52.4) 21.0 agreement contains a covenant with respect to the leverage of the restatement can be found on pages 107 and 108 of the Acquisitions of subsidiaries 77.7 - ratio and, during 2020 Kendrion, the banking consortium have financial statements. Non-recurring restructuring agreed on a temporary increased buffer in the financial costs net of tax paid 6.2 4.5 covenant levels as a precautionary measure against increased Normalised free cash flow 31.5 25.5 uncertainties as a result of the COVID-19 pandemic. Based on Solvency ratio the amended facility agreement, the financial covenant limits the maximum allowed leverage ratio to 4.7 on 31 December The year-end solvency ratio decreased to 47.4% (31 December Developments per segment 2020 and 5.8 per 31 March 2021 before gradually decreasing 2019: 56.7%). The lower solvency ratio is fully caused by the to 3.25 as from 31 December 2021 onwards. increased balance sheet as a result of the acquisition of Industrial INTORQ. Further information on the facility agreement and other debt Industrial – which accounts for 48% of Kendrion’s total revenue – instruments is provided in note 11 to the financial statements. reported revenue of EUR 190.3 million (2019: EUR 153.6 million). Free cash flow Normalised EBITA increased to EUR 20.7 million (2019: EUR 12.1 million) and EBITA as a percentage of revenue Normalised free cash flow before acquisitions amounted to improved to 10.9% (2019: 7.9%). EUR 31.5 million in 2020 (2019: EUR 25.5 million). Normalised free cash flow is free cash flow, adjusted for the cash impact of The activity level in our main Industrial end markets in the first cost items that have been normalised as one-off costs in the months of 2020 equalled the level experienced in the second half income statement. Reported free cash flow before acquisitions year of 2019. As the pandemic started to impact economic amounted to EUR 25.3 million (2019: EUR 21.0 million). The circumstances markedly in the second quarter, customer cash conversion defined as normalised free cash flow divided demand in the Industrial business units dropped in May 2020. by EBITA was 1.7 (2019: 1.3). The positive cash conversion Organic revenue in the second quarter decreased 18%

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year-on-year and 8% compared to the first quarter of 2020. The Automotive EUR 4.3 million depreciation related to central services such lower revenue level continued in the third quarter, but industrial as IT are presented as part of the Kendrion Automotive Group. manufacturing activity showed resilience in the fourth quarter The Kendrion Automotive Group, which accounts for 52% During 2020 the Automotive group suspended non-essential when the Industrial business units reported 5% year-on-year of group revenue reported a revenue decrease 20% to capital expenditure and most investments in 2020 related to organic growth. The machine building industry and aerospace EUR 206.1 million (2019: 258.8 million). Normalised EBITA new business wins in the last years. were significantly impacted by the downturn, while other amounted to negative EUR 1.8 million (2019: EUR 7.7 million) segments such as medical equipment in Industrial Actuators and EBITA as a percentage of revenue ended at negative 0.8% and Controls and wind power in Industrial Brakes developed (2019: 3.0%). Management statement positively. Revenue in Industrial Actuators and Controls decreased 13% in 2020 (2019: 8% decrease) and organic Automotive revenue in the first two months of 2020 were only In accordance with article 5:25c of the Financial Supervision revenue in Industrial Brakes decreased 8% (2019: modestly affected by the Chinese lockdown but decreased Act (Wet op het Financieel Toezicht), the Executive Board 5% decrease). markedly as from the end of the first quarter when many of our confirms, to the best of its knowledge, that: (i) the consolidated customers in Europe and the US shut down their operations. financial statements give a true and fair view of the assets, Organic operating costs decreased EUR 7.7 million in 2020 as The depth of the automotive downturn was reached in April liabilities, financial position, and profit and loss of Kendrion N.V. significant cost measures were taken to mitigate the financial and May 2020 before gradually rebounding as from June 2020. and its consolidated companies; (ii) the Annual Integrated impact of the pandemic related economic downturn. Cost The Automotive Group saw its second quarter revenue Report gives a true and fair view of the position as at measures included the implementation of short time work in decreasing 44% year-on-year and 36% compared to first 31 December 2020 and the developments during the financial many of the European manufacturing locations, a voluntary quarter revenue. Revenue subsequently recovered in the third year of Kendrion N.V. and its group companies included in the salary reduction of 15% by senior management and strict cost quarter with a 17% year-on-year decrease and in the fourth consolidated financial statements; and (iii) the Annual Integrated control with respect to other operating expenses. The quarter with revenue ending 6% below the fourth quarter of Report describes the main risks Kendrion is facing. EUR 2 million structural cost savings that were implemented 2019. The recovery was primarily driven by the passenger car towards the end of 2019 were fully effective in 2020. IAC realised segments where revenue reached pre-pandemic levels in the The members of the Executive Board have signed the annualized cost synergies of EUR 1.6 million from the internal last months of the year. Market circumstances for coaches and consolidated financial statements to comply with its statutory merger between Industrial Control Systems and Industrial heavy trucks remained challenging but showing some positive obligation pursuant to article 2:101, paragraph 2 of the Dutch Magnetic Systems, of which EUR 1.2 million were effective in signs towards the end of 2020. Market analysts estimate that a Civil Code and article 5:25c of the Financial Supervision Act. financial year 2020. Industrial Brakes realised EUR 2.8 million total of 74.5 million cars were produced globally in 2020, annualized cost synergies from the integration of INTORQ, of around 16% lower than the 89 million cars produced in 2018. which EUR 0.9 million was effective in financial year 2020. Operating costs decreased EUR 11.9 million in 2020. Besides Industrial cash investments amounted to EUR 4.6 million the substantial cost reductions to mitigate the financial impact (2019: EUR 4.8 million), which is below the depreciation level of COVID-19, the EUR 3.0 million structural cost savings of EUR 8.5 million. realised towards the end of 2019 were fully effective in 2020.

Automotive investments amounted to EUR 12.1 million (2019: EUR 16.3 million) compared to a depreciation level of EUR 17.2 million. EUR 1.4 million capital investments and

Contents Profile Strategy REPORT OF THE EXECUTIVE BOARD Outlook Report of the Supervisory Board Financial statements Sustainability Annual Integrated Report 2020 37 Action on sustainability

Creating long-term sustainable value is a Our global sustainability program reflects Kendrion’s mission When used in parallel hybrid applications these clutches principal strategic objective of Kendrion. Our and commitment to conduct business in a responsible and support a reduction of fuel compensation of up to 20%. Our global sustainability program forms an integral sustainable way and aspires to strike the right balance between single-disc Servo Slim Line brakes enable the production of long-term value creation and profitability and playing a compact and safe collaborative robots with significant lifting part of our strategic plan and is derived from meaningful role in addressing key societal and environmental capacities ranging between 3 to 20 kilos. Our Lighthouse ongoing interaction and dialogue with our issues. Our strategic decisions take account of a range of projects are described in detail on pages 14-20 of this Annual stakeholders. financial and non-financial considerations. Key principles and Integrated Report. measurable targets underpin Kendrion’s sustainability program and are structured along our three pillars of value creation: Other areas that are key drivers of our long-term growth strategy Natural Capital, Social and Human Capital and Responsible are the market for Wind Power where we anticipate a continued Business Conduct. fast-growing demand for brakes for wind turbines and China, where we have identified a significant opportunity for our technology in a range of automotive and industrial applications. Long-term sustainable value

Although the automotive market was most affected by the Stakeholder dialogue COVID-19 pandemic in the short term, innovation accelerated A RAI in Autonomous, Connected, Electric and Shared driving (known Kendrion seeks to engage in open dialogue with stakeholders as ‘ACES’). We view the ACES as one of the key drivers of our to deepen its insights into their needs and expectations with long-term growth opportunities and therefore also the design a view to creating long-term sustainable value. Regular and implementation of our global sustainability program. We stakeholder engagement helps Kendrion to progress its global continued to invest in the Lighthouse projects that were sustainability program, not only in design but also in identified in 2019: six products that help advance the management and execution. implementation of ACES vehicles and in addition the markets atural oial Responsile for Robotics and Automation. These markets offer significant Our key stakeholder groups include: customers, suppliers, apital and uan usiness growth potential for our business in the medium to long-term. employees, shareholders, local communities and technical apital ondut Our Lighthouse projects are not only fundamental to our universities and institutes. For each group, Kendrion’s ambition to grow revenues and profitability, they also contribute stakeholder engagement varies and includes formal and to reducing the environmental impact of vehicles and systems informal channels that are applied with varying degrees of R ARA A I AR in which our products are used. For example, our off-highway regularity. The key stakeholder groups are described on pages electromagnetic clutches contribute to increased fuel efficiency. 54 and 55 of this Annual Integrated Report.

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Although our stakeholder dialogue continues as part of regular The 2020 materiality analysis involved a three-tiered approach: engagement and communications with our customers, suppliers, shareholders and employees, Kendrion is committed ■ Selecting potentially material topics by carrying out a desk to conducting a structured in-depth stakeholder engagement research based on internal documentation, international process every two years. Kendrion previously carried out an standards, the SDG industry matrix, sustainability reporting in-depth stakeholder engagement process in 2018 and in 2020 by peers*, sector trends and media analysis and by Kendrion repeated the performance of a stakeholder subsequently consolidating outcomes and defining a engagement process. Consistent with prior years, the preliminary overview with material themes and definitions. stakeholder engagement process included a structured sustainability survey among internal and external stakeholders ■ Validating and determining relevance of preliminary and specially convened sustainability sessions with certain key selection of material themes by stakeholders through a external stakeholders. The outcome of the 2020 stakeholder sustainability survey and by reference to sustainability engagement process will be used as input for Kendrion’s sessions with certain key external stakeholders and the strategy development process. subsequent consolidation of results. Consistent with the 2018 survey, the 2020 sustainability survey was categorised along the three pillars of value creation that form the basis Materiality analysis of Kendrion’s sustainability program: Natural Capital, Social and Human Capital and Responsible Business Conduct. For a focussed strategic approach, aimed at a healthy balance The sustainability survey participants were asked to rate between stakeholder expectations and business aspirations, topics according to their importance and to assess we identify and assess the material topics that are most Kendrion’s perceived performance on these topics. relevant to Kendrion’s activities. To this end, Kendrion uses Participants were also asked to state the relative a materiality analysis to gain insight into the relevance and importance of each of the three value creation pillars and an importance of topics for both Kendrion and our stakeholder open question allowed participants to add any topics that groups. Although material topics may remain the same over had been issued. time, their relevance for internal and external stakeholders is subject to change. ■ With due regard to the outcomes of the previous steps, concluding on materiality by management through internal The outcome of the 2018 materiality analysis has been used as validation session and subsequent finalisation of materiality input for Kendrion’s sustainability program and the 2019-2023 matrix. target framework. In 2020 Kendrion commissioned the performance of a new materiality assessment. Together with a specialised consultancy firm, a tailored approach was developed to assess materiality and the results of the internal * Peers included: Boskalis, Fugro, Aalberts, TKH Group, Neways and external stakeholder consultation. Electronic, Advanced Metallurgic, Continental, Schneider Electronic, Nedap.

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Compared to the materiality assessment performed in 2018, the 2020 assessment did not reveal significant movements in Materiality matrix Business the ranking of individual material themes. However, and by ethics & Integrity Economic performance reference to the sustainability sessions with certain key stakeholders as well as the results of the sustainability survey, stakeholders expect Kendrion to focus on a set of material Responsible & innovative products themes where Kendrion can have the greatest impact through meaningful contributions. Moreover, the updated materiality Employee health & safety matrix shows an enhanced classification and organisation of material themes with a view to maintaining continued focus on Employee development Customer engagement those themes where we can have the most impact. The Energy management & emissions outcome of the 2020 materiality analysis forms an important

SIGNIFICANCE TO STAKEHOLDERS Responsible procurement Human rights input for the further development and execution of our sustainability program and the 2019-2023 target framework. Inclusive workplace Customer privacy & Material & waste Strategic partnerships & co creation data security management Materiality matrix Community involvement Water management The resulting materiality matrix is, by definition, a snapshot and opinions among stakeholder groups may vary. Kendrion’s materiality matrix shows the material topics along two axes: SIGNIFICANCE TO KENDRION significance to stakeholders and significance to Kendrion. While this Annual Integrated Report generally covers topics in the Natural capital Social and human capital Responsible business conduct above materiality matrix, Kendrion has not set measurable sustainability targets for each topic. Kendrion reports against the 2019-2023 target framework and related commitments and will use the updated materiality matrix resulting from the 2020 materiality analysis and its ongoing engagement with stakeholders to further development the Kendrion sustainability program and related sustainability target framework.

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Kendrion reports only onTarget the most framework relevant material 2019-2023 topics. The 2019-20232019-2023 TARGET TARGETS FRAMEWORK most relevant material topics are: economic performance, anti- corruption, energy efficiency,Parallel toemissions and in line to withair, theoccupational new long-term financial targets announced in August 2018, health and safety, training and education, non-discrimination Kendrion has developed a sustainability and equal opportunities. Kendrion reports according to the GRI target framework for 2019-2023. The 2019- reference claims, which2023 are describedtarget framework on page has 197 been in structured the Natural Capital Social and Human Capital Responsible Business Conduct section ‘About the Sustainabilityalong the threeReport’. pillars of value creation: Natural Capital, Social and Human Capital Recurring annual improvement Maintain a responsible and Responsible Business Conduct. 15% of health & safety figures product portfolio Relative reduction number of accidents per 1,000 FTE, Products that Keep you Safe, Products The outcomes of the stakeholder dialogues of energy lost time injury rate per 1,000 FTE, that Reduce Climate Impact and Products and the sustainability survey have been consumption group-wide illness rate that Improve Health taken into consideration when determining the 2019-2023 target framework. The establishment of a Consistent with the approach in 2018, each Global Diversity Committee, Sustainable sourcing value creation pillar has its own key themes 15% responsible for advancing diversity Sourcing only from approved suppliers and target framework. Relative reduction and conducting at least 25 implementation audits annually of CO2 emission Going forward, Kendrion will report progress The implementation of a global on the 2019-2023 target framework and company culture campaign related commitments.

Implementation of the waste Continuous improvement management hierarchy and strengthening of in global waste management practices the Global Legal Compliance Rewarding 10 community and Governance Framework investment initiatives per year to secure responsible business conduct through Together@Kendrion

Please refer to the section ‘About the sustainability report’ on pages 197 and 198 of this Annual Integrated Report for reporting periods, definitions, scope and limited assurance review.

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NATURAL CAPITALL Energy consumption & CO2 emission largest production plants are ISO 50001 certified and all plants except for Mishawaka are ISO 14001 certified.

The Natural Capital pillar focuses on Energy efficiency and reduction of CO2 emission is part of our improving Kendrion’s environmental performance sustainability 2019-2023 target framework. We aim to achieve Kendrion’s drive to use energy efficiently and to reduce CO2 and its ambition to reduce its environmental a 15% relative reduction of energy consumption and CO2 emission is reflected in a range of activities and investments. In emission by the end of 2023, by streamlining processes in our 2020, Kendrion reviewed the effectiveness of measures footprint. Material themes for the Natural Capital production plants and our offices. implemented under the five-year roadmap that was designed in pillar include energy consumption, CO2 2019 and which includes measures for the production plants emissions and waste management. Kendrion aims to reduce the amount of energy used during its aimed at the realisation of a 15% relative reduction of energy

production process and its CO2 emission. Kendrion applies an consumption and CO2 emission by the end of 2023. This five- environmental reporting system that tracks the CO2 emissions year roadmap was designed in 2019 after extensive review and and energy consumption of all the production plants. Year-on- recommendations made by various specialists at our plants. year, Kendrion focuses on improving the production processes Relevant considerations for the design of the five-year energy

with the overall objective of reducing the environmental footprint and CO2 reduction roadmap included the total energy of the production plants. The global certification ISO 50001 consumption per production plant and the extent to which Energy Management System supports the production plants in there is potential to realise meaningful reductions. Our five-year their efforts to use energy more efficiently by developing and roadmap contains – among other things – the following maintaining an energy management system. Kendrion’s measures designed to increase energy efficiency and environmental management systems are in accordance with productivity: sourcing green electricity and gas, upgrading air ISO 14001. ISO 14001 Environmental Management Systems compressors, including heat recovery from air compressors, specify requirements for an environmental management system integration of cooling for washing machines, introduction of in order to enhance environmental performance. Kendrion’s new moulding machines, installation of chillers for clean rooms,

2019-2023 TARGET FRAMEWORK Waste management Relative reduction of Relative reduction REALISED IN 2020 REALISED energy consumption of CO2 emission ■ Reviewed effectiveness of five-year energy ■ 10% reduction of waste reduction and CO2 roadmap ■ Recycling rate increased from 80% TARGET 2023 TARGET 2023 ■ 2.6% decrease absolute energy consumption to 82% 15% 15% ■ 4.5% decrease in absolute CO2 emissions ■ Distribution hazardous waste (8%) ■ Local beGREEN initiative focussing on powerful and non-hazardous waste (92%) 2020 ACTUAL 2020 ACTUAL portfolio of energy efficient products 1.3% 3.2%

Please refer to the section 'About the sustainability report' on pages 197 and 198 of this Annual Integrated Report for reporting periods, definitions, scope and limited assurance review.

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repairing compressed air leaks, extending energy-efficient LED technology across plants, including offices, further optimisation Energy and Emissions1 of heating systems and installation of solar panels. To monitor Δ % progress and to strengthen oversight relevant to the consistent Energy consumption 2020 2019 2020 / 2019 execution of the five-year energy and CO2 reduction roadmap, Power kWh 22,258,073 23,409,585 -4.9% additional measures were taken, including the enhanced Fuel oil kWh 454,650 468,560 -3.0% extension of roles and accountability among senior Natural gas kWh 12,075,873 11,829,214 2.1% management. Despite outbreak of the COVID-19 pandemic, 34,788,596 35,707,359 -2.6% which necessitated the implementation of strict operating procedures to ensure a safe and responsible continuation of Δ % production, generally all plants are on track with the execution Energy consumption per EUR million added value 2020 2019 2020 / 2019 of the five-year energy and CO2 reduction roadmap. Power kWh 119,693 124,200 -3.6% Fuel oil kWh 2,445 2,486 -1.7% In addition to the centrally coordinated activities, we encourage Natural gas kWh 64,938 62,760 3.5% our production plants to develop local initiatives directed at the 187,076 189,446 -1.3% reduction of our environmental footprint. Kendrion Markdorf’s beGREEN initiative focussed on energy saving measures and Δ % the development of a powerful portfolio of energy efficient Energy consumption 2020 2019 2020 / 2019 products. Through dedicated Energy Teams we foster a culture Absolute consumption, kWh 34,788,596 35,707,359 -2.6% of awareness and invite our employees to contribute by sharing Relative consumption, kWh / million EUR added value 187,076 189,446 -1.3% their ideas and by participating in activities. Providing employees with training and appointing energy scouts with Δ % 2 responsibility for identifying potential for further enhancing the CO2 emissions 2020 2019 2020 / 2019 efficient energy use during the production process are also part Absolute emissions, tonnes 6,397 6,698 -4.5% of Kendrion’s efforts to reduce its environmental footprint. Relative emissions, tonnes / million EUR added value 34.4 35.5 -3.2%

1 Moreover, Kendrion aims to further reduce its CO2 footprint Please note that all entities report energy consumption based on December previous year to current period -/- 1 month. Please refer to the through energy-efficient offices. With its modern design, section ‘About the sustainability report’ on pages 197 and 198 of this Annual Integrated Report for reporting periods, definitions, scope and Kendrion’s head office in Amsterdam is a good example of limited assurance review. such an office. The solar panels installed at our plant in Austria 2 Scope 1 and 2 of the Greenhouse Gas Protocol. provide electricity for the office work places and with its green roof area with flora to filter pollutants and fine dust from the air, our Austrian plant contributes to the preservation of the natural environment. The COVID-19 pandemic triggered the limitation of our travel and the increased use of alternative communication tools and applications allowing for the remote

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Kendrion aims to further reduce its CO2 through participation in meetings. With our global travel guidelines parliament, thereby contributing to the political decision-making energy efficient offices. With its modern design, aimed at CO2 neutrality and cost reduction that were process on issues concerning one or more of the Senate’s Kendrion’s head office in Amsterdam is a good reintroduced in 2019, we continue to limit travel as appropriate objectives. Most recently, the Senate supported the ‘Alliance for example of such an office. to reduce our CO2 footprint and to use communication tools climate protection’ (Allianz für Klimaschutz), an initiative of the supporting remote meeting participation. Absent barring German federal government, which has a special focus on

circumstances like COVID-19, commute by public reducing global CO2 emission. transportation is encouraged across the Kendrion organisation. The head office in Amsterdam is within walking distance of the Further to our ambition to use energy efficiently and reduce

train and tube station, and employees are expected to make CO2 emission, especially as part of the production process at use of public transport or bicycles. Certain of our plants have our plants, we also seek to maintain a responsible product installed solar powered bike rack systems for e-bikes portfolio by positioning ourselves at the forefront of key encouraging bike commuting and charging stations for hybrid megatrends that offer opportunities for creating long-term and full electric vehicles for those who must commute to work sustainable value. Our Lighthouse projects contribute to by car. Other initiatives include the annual car free day in China, reducing the environmental impact of vehicles and systems in which was inspired by the World Car Free Day that has become which our products are used. We will continue to improve our a global phenomenon. Kendrion China’s car free day is existing range of products, and research new application areas organised every year in October. Our prior intent involved the to increase product use in a sustainable way. further roll out of the car free day across multiple Kendrion locations. However, due to COVID-19 this initiative has been deferred. Waste management

In addition to the targeted actions to reduce energy Kendrion is committed to continuously improving its

consumption and CO2 emission at the Kendrion production management of all waste throughout its lifecycle and to helping plants and energy efficient offices, we also actively support reduce waste in order to minimise its adverse impact on the external initiatives and are committed to using available environment. This involves the minimisation and responsible specialist expertise. For example, our Chief Commercial Officer disposal of waste related to production. Automotive is a member of the Senate of Economy (Senat der Wirtschaft), an independent institute and consisting of Kendrion’s environment management systems are set up representatives from the fields of economics, science and in accordance with the global certification ISO 14001 society. Members are ambassadors of the Senate, and through (all production plants except for Mishawaka are ISO 14001 their membership they contribute to the implementation of the certified) and the certified plants maintain effective records of objectives of the Senate of Economy. The Senate’s objectives their production and processing of all waste and work with include: ecological sustainability for conservation of the certified waste processing companies when this is required by environment, social sustainability, promotion of non-profit local regulation. New waste reduction measures must be Kendrion China’s car free day inspried by the World Car Fee Day that has projects, etc. Its activities include attending relevant summits implemented each year as part of the ISO 14001 certification become a global phenomenon. and consulting with the German government and members of process.

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Since 2019 the collection of waste data has been fully substances comprising the top-three of hazardous materials centralised, and the data collection process has been and iron and steel, commercial waste and cardboard strengthened with the introduction of uniform waste data dominating the top-three of non-hazardous materials. collection sheets and waste registers using consistent waste definitions. The centralisation of the collection process has With a view to develop and implement further harmonised been developed based on a pilot that was carried out in 2018. waste management practices across the Kendrion organisation The standardisation of internal reporting and control processes and ultimately introduce concrete and measurable waste have enabled comprehensive reviews of the different categories targets, we institutionalised waste management by the of waste generated by the Kendrion production plants as well establishment of a dedicated waste management task force as differences is local waste management practices that are which is headed by representatives of our three business units. driven by – for example – variances in production processes or A key responsibility of the waste task force includes the regulatory requirements. Going forward, further improvements assessment of the feasibility and appropriateness of waste to our waste reporting processes will help us benchmark and objectives and targets. Also based on the outcome of prior track waste management performance. in-depth waste analyses, the following categories are subject to such a feasibility review: percentage of hazardous waste relative The outcome of the most recent waste data analysis shows a to the total amount of waste, improvement of overall recycling 10% reduction of waste compared to the prior year and the rate, utilisation of potential commercial waste through improved overall recycling rate increased from 80% to 82%. The separation and upcycling possibilities, increase and improve distribution of hazardous waste (8%) and non-hazardous waste engagement with certified disposal companies and (92%) remained unchanged. Likewise, the top-three of maintenance of disposal evidence. In addition, efforts are hazardous and non-hazardous materials remained unchanged, undertaken to improve alignment of the waste reporting cycle with cooling fluid, old oil and packaging of hazardous to the reporting cycle of other non-financial information.

Kendrion is committed to continuously improving its management of all waste throughout its lifecycle and to helping reduce waste in order to minimise its adverse impact on the environment.

Contents Profile Strategy REPORT OF THE EXECUTIVE BOARD Outlook Report of the Supervisory Board Financial statements SUSTAINABILITY Annual Integrated Report 2020 45 n SOCIAL AND HUMAN CAPITAL Community connection Volunteering In addition to sponsoring and financially supporting various The Social and Human Capital pillar Local employer and a good neighbour good causes, Kendrion’s employees are encouraged to invest concerns employees’ competences, capabilities Kendrion maintains strong ties to the communities in which personal time in local communities by taking part in fundraising and motivations. Material themes for the Social it operates by encouraging an open dialogue with local activities and volunteering for events. management and through Kendrion’s long-standing and Human Capital pillar include community commitment to being a local employer and a good neighbour. Supporting the local community connection, health & safety, diversity and In 2020, Kendrion continued its conscious effort to support the company culture as summarised in Together@Kendrion economic and social well-being of local communities through ‘The Kendrion Way’. Kendrion values the social good that can be achieved by strong local community engagement and by supporting local demonstrating initiative and taking a long-term perspective. community and social development projects, albeit at a Kendrion supports the economic and social well-being of the reduced intensity level due to COVID-19. Because of COVID-19 local communities in which it operates through Together@ certain scheduled initiatives supported through Together@ Kendrion and other efforts initiated by local management. Kendrion were postponed or cancelled. In China most scheduled projects continued, such as the ‘Book Donation Week’ where books were donated to children in need.

Recurring annual Accidents Lost Time Injuries Illness rate Diversity@Kendrion Promoting and maintaining improvement of health (per 1,000 FTE) (in days) a culture in line with the values & safety figures of The Kendrion Way

■ Health and Safety has 2020 TARGET 2020 TARGET 2020 TARGET REALISED IN 2020 REALISED IN 2020 the highest priority ≤ 6.9 812 ≤ 4.8% 40 nationalities, 11 countries, ■ Establishment of dedicated ■ Enhanced HSE standards 50% female workforce value teams 2020 ACTUAL 2020 ACTUAL 2020 ACTUAL based on plant-specific needs, production lines ■ Healthy balance of nationalities and and technologies 5.3 384 4.4% gender across the organisation

■ Establishment Health Task Force ■ COVID-19 hygiene measures reducing overall illness rate

Please refer to the section 'About the sustainability report' on pages 197 and 198 of this Annual Integrated Report for reporting periods, definitions, scope and limited assurance review.

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Health & Safety responsibilities as they continue their work. Senior management timely recognised the impact of short-time work as well as Health and Safety is given the highest priority in every aspect of other restrictive measures imposed due to COVID-19 – such as Kendrion’s operations at all times. Kendrion is committed to the strict separation of production shifts – on the mental vitality providing a safe and healthy workplace for all employees by of employees and have done their utmost to support implementing the most stringent quality and safety standards to employees during this time of uncertainty. avoid any potential risks to people, communities and the environment. Kendrion’s employees are periodically trained to The Kendrion Health Task Force monitors our global health and implement the best sustainability practices. The health and safety figures and coordinates the implementation of structural safety of employees are essential to the successful conduct of improvement measures in all our plants. The strict hygiene Kendrion’s business and are in the best interest of Kendrion’s measures aimed at the containment of COVID-19 positively other stakeholders. impacted our illness rates as we observed a steady decline of our illness rates in 2020. With the outbreak of the COVID-19 pandemic, the focus on health and safety of our employees, their families and other Day-to-day responsibility for health and safety is concentrated stakeholders increased further and became the company’s within the business units in which health and safety are managed absolute priority. Strict operating procedures and regulations systematically and in a standardised manner with clear rules and industry, ISO 14001 Environmental Management Systems and were implemented to continue safe and responsible production procedures based on recognised industry standards and best ISO 50001 Energy Management System. in all plants and instant measures were taken to facilitate digital practices that are laid down in Health, Safety & Environmental collaboration for the office staff. The communication with all (HSE) policies. Each production plant further implements Kendrion locations worldwide was increased to closely monitor initiatives to enhance its HSE standards depending on plant- 5S methodology COVID-19 developments and to keep everyone informed and specific needs, production lines and technologies. HSE audits connected. COVID-19 not only triggered an increased focus on are performed to assess, implementation and compliance with Due to the continued focus on the safety of the production physical health, it also activated awareness around mental health HSE policies at regular intervals. Specific and measurable processes, Kendrion achieved good safety results across its and wellbeing and the need to act in a spirit of solidarity. In performance targets for Kendrion’s business units and local production plants. All the major production plants apply the 5S addition to the protection of the health and safety of our management include health and safety metrics, which are methodology, which aims for the continuous improvement of a employees and their families, the COVID-19 pandemic determined by the number of accidents per 1,000 FTE, Lost safe working environment and working conditions. necessitated the consistent execution of a cost control program Time Injury (LTI) rates and illness rates. The production plants that have implemented the 5S approach to preserve Kendrion’s business continuity. As part of this cost apply a systematic process to optimise their production lines control program, Kendrion made use of short-time work and periodically perform 5S audits to verify compliance with the arrangements in our European plants. Evidently, the adverse Certifications methodology. effect for employees of these arrangements consist of a salary cut, but short-time work arrangements may also impact the Kendrion’s production plants hold global certifications demon­ mental vitality of employees. The latter not only for those strating the quality of Kendrion’s production and management employees who are subject to short-time work but also for the processes, including ISO 9001 Quality Management Systems, remaining employees who are faced with a changing range of IATF 16949 Quality Management Systems for the automotive

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Diversity The foundation of our strategic house is our culture, ‘The Following the initial roll-out in 2019 of the global inter-company Kendrion Way’. This is based on the principle that no building is campaign of The Kendrion Way, additional initiatives have been Kendrion believes in the strength of a diverse workforce. stable without a strong foundation, regardless of the strength of developed and executed to further embed the behavioural Kendrion is committed to attracting and retaining a diverse its building blocks. We define ‘The Kendrion Way’ in a single values of The Kendrion Way into the organisation. Educating, global workforce through its employment strategy. Kendrion’s sentence: ‘A global team of actuator specialists, with courage training and providing concrete examples of expected workforce in 2020 comprised 40 nationalities (2019: 37) to act, curiosity to learn from successes and mistakes, behaviours, dilemmas and actions are key to this. Dedicated employed in 11 countries (2019: 10). 50% (2019: 51%) of our confidence to share, and open to feedback’. The objective of value teams have been set-up to increase awareness and to workforce is female. Kendrion continues to undertake action to defining The Kendrion Way is to give our employees clear support employees in their value journey and to help further improve diversity in technical and non-technical roles guidance as to what kind of culture we aspire to build within our understand what each value means to them and the and at all levels of the organisation. For more information about company, regardless of location, level of responsibility or organisation. A colourful mix of interactive trainings and learning diversity at Kendrion, reference is made to pages 60 and 61 of functional role. The Kendrion Way provides a consistent platforms has been launched to help our employees live and this Annual Integrated Report. approach towards realising our ambitions, and – as such – is breathe the values of The Kendrion Way. the foundation on which we build Kendrion’s future.

The Kendrion Way

Kendrion’s strategy and values are symbolically captured in our strategic house that provides direction and uniformity within a clear structure. Creating long-term sustainable value with a lean and focussed organisation and providing a top-quality work environment to our employees are key to our strategy. Our strategic house is built on three pillars; each pillar represents a different component of Kendrion’s strategic plan. Pillar one represents our growth opportunity in Automotive. Pillar two represents the growth aspiration in our Industrial Brakes business unit, and pillar three represents our Industrial Actuators and Controls ‘cash engine’. China is a key part of all three pillars.

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RESPONSIBLE BUSINESS CONDUCT Responsible product portfolio public facilities and more. Behind the scenes, lifts are equally important for moving goods at construction sites, factories and The Responsible Business Conduct Maintaining a responsible product portfolio is part of our other industrial facilities. For all these applications, safety brakes pillar focuses on business conduct and integrity, sustainability 2019-2023 target framework. Within our are an essential component in any lift. Our brakes help ensure accountability and transparency. Material themes responsible product portfolio, we maintain the following that lifts remain a safe and comfortable means of transportation. categories: Products that keep you safe, Products that reduce for the Responsible Business Conduct pillar climate impact and Products that improve health. We will Products that reduce climate impact include maintaining a responsible product continue to improve our existing range of products, and Our Lighthouse projects support our commitment to conduct portfolio, sustainable sourcing and ethical research new application areas. The overview below provides business in a responsible and sustainable way. In particular, our behaviour. a selection of our responsible products. Reference is also made products contribute to reducing the environmental impact of to the product overview on page 52 of this Annual Integrated vehicles and systems in which our products are used. Our Report which links a selection of our products to the so-called ‘dog clutch’ for mild hybrid trucks offers a huge

Sustainable Development Goals (SDGs). contribution to CO2 reduction. Electrification and fuel cell solutions are obvious options to drastically reduce CO2 Products that keep you safe emissions, but mild hybrid is an attractive alternative. A mild For millions of people around the world, lifts are a hybrid uses the starter generator instead of the combustion commonplace way to reach the high points and low spots engine. Kendrion’s mild hybrid solution contributes to the

of an apartment, office building, hotel, shopping mall, hospital, reduction of CO2 emission.

2019-2023 TARGET framework Sustainable sourcing Suppliers Introduction of the new Maintain a responsible Sourcing only from approved implementation audits Code of Conduct that product portfolio suppliers and conducting at least builds upon the values of 25 implementation audits annually Products that Keep you Safe, TARGET 2020 The Kendrion Way Products that Reduce Climate Impact 25 and Products that Improve Health Kendrion selects suppliers based e areul 2020 ACTUAL REALISED IN 2020 on various sustainability criteria and requires suppliers to sign and adhere ■ Alignment product portfolio to SDGs to the Kendrion Supplier Code of 28 ■ Improved focus on sustainable Conduct product use ■ Continued research into new application areas

ont share information that youre not supposed to share alk to our people if you dont trust an email f you made a mistake let kno and learn from it Find out more about our code of conduct by scanning the Please refer to the section 'About the sustainability report' on pages 197 and 198 of this Annual Integrated Report for reporting periods, definitions, scope and limited assurance review. QR code.

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Products that improve health Permanent magnets are used in some of Kendrion’s products. employees based on an internal procedure that prescribes the The pressure regulators and solenoid and proportional valves The volumes of these magnets used by Kendrion are limited, collection of CR documentation of the relevant supplier in the manufactured by our Business Unit Industrial Actuators and but Kendrion cannot avoid the use of permanent magnets case the supplier is ISO certified and the use of standardized Controls ensure precise and reliable gas dosing in ventilation altogether, as the use of permanent magnets in products self-assessment questionnaires in the case the supplier is not and anaesthesia devices. In 2020 we were urgently requested increases their functionality, such as the torque. A category of ISO certified. Audits that reveal that a supplier does not meet by the British government to deliver pressure regulators to the permanent magnets contains a number of rare earth metals. the requirements of the Supplier Code of Conduct are followed NHS in the UK for use in ventilators to battle COVID-19. Our The mining and of refining of rare earth metals is energy by a meeting to prepare a remediation plan. pressure regulators are critical parts to the oxygen ventilators intensive. Kendrion strives to use as little of these permanent and help save patients’ lives. magnets. The use of permanent magnets also makes the Failure to adequately follow up the remediation plan may result product lighter, which in turn reduces energy consumption and in the termination of the relationship with the relevant supplier. emissions. The results of the 28 (2019:35) supplier audits conducted in Sustainable sourcing 2020 have been encouraging as there were no suppliers that Frequently used materials are steel, aluminium, copper and did not fulfil the recommended requirements for compliance At Kendrion, sustainable sourcing represents our ambition to plastics. In many cases, semi-finished products are purchased with the Supplier Code of Conduct. work with suppliers that act responsibly and with integrity. based on specifications of Kendrion’s customers. Kendrion Kendrion selects suppliers based on various sustainability used 1,428 tonnes of copper (best estimate) in the manufacture Through the approach and initiatives set out above, Kendrion criteria and requires suppliers to sign and adhere to the of its products in 2020 (2019: 1,543 and 2018: 1,924 tonnes). actively encourages its suppliers to take responsibility in Kendrion Supplier Code of Conduct. addressing issues that affect the supply chain as a whole.

Kendrion operates as part of a supply chain with a central Supplier Code of Conduct and audits focus on manufacturing and production processes. Kendrion Ethical behaviour and other parties forming part of the supply chain are The Kendrion Supplier Code of Conduct requires suppliers to collectively responsible for maintaining the quality and accept their responsibility for matters concerning the Kendrion believes it is important that all activities are conducted sustainability of the products in the supply chain. All parties environment, human rights, working conditions and fair trade. with integrity and in a transparent manner. To this end, Kendrion forming part of the supply chain play a role in addressing Kendrion regularly conducts audits to review whether suppliers fosters a culture in which shared norms, universal ethical values major issues that affect the supply chain as a whole. Kendrion comply with the standards and principles of the Supplier Code and behaviours are the standard. Shared norms, ethical values intends to play a meaningful role in the supply chain in which of Conduct. The supplier audits are internal audits by Kendrion and expected behaviours are laid down in a set of internal it is active. In many instances, Kendrion is a relatively minor link in the supply chain. In order to achieve meaningful results, it is Simplified supply chain overview Kendrion of great importance that Kendrion continues to engage in (Tier 1/OEM and (Tier dialogue with its suppliers and continues to consider after markets) Sourcing parts Industrial Customers performance with respect to sustainability in its supplier & materials markets selection and assessment. R&D Design & (machined Manufacturing/ Sales & Assembly Distribution Engineering parts, copper, steel, aluminium, Automotive Kendrion does not use any conflict minerals from the Congo plastics) markets region in its products during its own production process.

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policies and procedures. In addition to setting norms, values the message underlying the Code of Conduct. Going forward, and expected behaviours, Kendrion’s policies and procedures educating, training and providing concrete examples of are aimed at ensuring compliance with applicable laws and expected behaviours, dilemmas and actions are key to regulations. continued compliance with our values.

Key internal policies and procedures include: Code of Conduct, Kendrion does not tolerate bribery or any form of corruption. Anti-Bribery and Anti-Corruption Policy, Speak-up procedure, Bribery may involve the offering, promising or giving of Competition Compliance Manual, Insider Trading Code, Data payments or other benefits to any person (including Protection Governance Guidelines, Personal Data Breach government officials or public officials) to improperly influence Reporting Procedure, Supplier Code of Conduct and related a business outcome, but it also means accepting payment or internal policies and procedures. benefits offered to improperly influence a business outcome. Integrity of financial reporting is also a key principle. The In 2020 Kendrion introduced a new Code of Conduct that Kendrion Anti-Bribery and Anti-Corruption Policy specifically builds upon the values of The Kendrion Way, particularly the addresses these matters. value integrity. The Code of Conduct is about bringing together nearly 2,500 people with 40 different nationalities from multiple Kendrion considers it essential that every employee Kendrion locations around the globe that operate under The understands, complies with and conveys the shared norms and Kendrion Way and together form the Kendrion brand. The universal ethical values and behaviours as laid down in the Code of Conduct provides unity and sets guidance for business internal policies and procedures. Our policies and procedures decisions and principles of ethical behaviour. It is about are fundamental to ensuring responsible business conduct. It is consciousness and taking the right decisions in our everyday the responsibility of senior management to lead by example business lives. We expect all our employees to do what is and to ensure that all Kendrion employees are aware of and ethically right and legal, and to not only live by and respect the behave in accordance with the spirit and the letter of Kendrion’s principles set forth in the Code of Conduct, but to also convey policies and procedures.

In 2020 Kendrion introduced a new Code of Conduct that builds upon the values of The Kendrion Way.

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Sustainable development goals

As part of its 2019-2023 sustainability target framework, did require nor justify substantive amendments to Kendrion’s Kendrion aims to contribute to the advancement of several prior determination that SDGs 3 (Good health and well-being), selected SDGs. 12 (Responsible consumption and production) and 13 (Climate action) are the SDGs on which Kendrion can have the greatest Kendrion previously conducted a review on where it can best positive impact. contribute to the advancement of SDGs. This involved careful consideration of all SDGs, while taking account of dialogues Kendrion will continue developing best practices and standards with stakeholders and findings of the sustainability survey – and where appropriate qualitative and quantitative targets – performed in 2018. The outcome of the materiality assessment that support the advancement of the selected SDGs. performed in 2020, which also included a sustainability survey,

SDG 3 – Good health and well-being SDG 12 – Responsible consumption and SDG 13 – Climate action Kendrion has strong HSE policies within its production Kendrion has established plans for the reduction of

organisation and each production plant implements For all its production processes, Kendrion is CO2 emission and energy consumption for all its tailored initiatives to further enhance their HSE committed to minimising waste and disposing of operations. Concrete and measurable targets standards depending on plant-specific needs, waste in an environmentally responsible manner. support the plans. Kendrion’s largest production production lines and technologies. Through Kendrion’s environment management systems are in plants maintain energy management systems in Kendrion’s Responsible Product Portfolio (which accordance with the global certification ISO 14001 accordance with ISO 50001. Through Kendrion’s includes Products that Improve Health, Products (all production plants except for Mishawaka are Responsible Product Portfolio (which includes that Reduce Climate Impact and Products that ISO 14001 certified). As part of the ISO 14001 Products that Improve Health, Products that Keep you Safe), Kendrion contributes the certification process, new waste reduction measures Reduce Climate Impact and Products that Keep you advancement of healthier lives and improvement of must be implemented each year. Safe), Kendrion helps reduce the impact of climate well-being for all. Through the implementation of a waste change. management hierarchy in harmonised waste management practices, Kendrion is committed to contributing to the advancement of sustainable production patterns.

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Sustainability sessions with certain of Kendrion’s key external Kendrion’s determination to focus on the advancement of stakeholders held in 2020 revealed an expectation among SDGs 3 (Good health and well-being), 12 (Responsible stakeholders relevant to the continued reporting on sustainable consumption and production) and 13 (Climate action). The product use and additional categorisation of Kendrion’s overview below provides a selection of Kendrion’s products products along the most applicable SDGs, irrespective categorised along the relevant SDGs.

Business segment Product SDG SDG view

Automotive Electromagnetic actuators for transmission, suspension, exhaust, sound and 3 (Good health and well-being) Enhances automotive safety seating systems

Automotive Battery cooling valves and control units 7 (Affordable and clean energy) Increase efficiencies and attractiveness of electric vehicles

Automotive Electromagnetic actuators for fuel and engine cooling systems that help reduce 9 (Industry innovation and Improve resource use efficiency fuel consumptions infrastructure)

Industrial Electromagnetic components and control units for the medical industry 3 (Good health and well-being) Essential components for medical equipment

Industrial Electromagnetic brakes and components for industrial safety 3 (Good health and well-being) Enhances safety of industrial processes

Industrial Electromagnetic brakes and components for fire protection, elevators, 3 (Good health and well-being) Enhances safety of people appliances and aircrafts

Industrial Control units and systems for (inductive) heating 9 (Industry innovation and Improve resource use efficiency infrastructure)

Industrial Microvalves for water cleaning 6 (Clean water and sanitation) Prevent contamination of drinking water

Industrial Electromagnetic brakes for wind turbines 7 (Affordable and clean energy) Increase renewable energy

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Reporting principles and external verification The Dutch Ministry of Economic Affairs and Climate Policy carries out a bi-annual study (i.e. normally in each odd Being transparent and accountable is fundamental to the way numbered year) known as the Transparency Benchmark. The in which Kendrion operates. Our approach to reporting Transparency Benchmark is held among the largest companies enhances discipline to our sustainability and responsible in the Netherlands and aims to measure transparency in business practices. It ensures that we are aligning our activities reporting on corporate social responsibility. Since the launch of with our strategic objectives and business values. Our our sustainability program with the formalisation of our first sustainability reporting shows whether our activities and energy efficiency targets in 2014, Kendrion has developed and initiatives meet our 2019-2023 target framework. The scope of improved its sustainability reporting and has participated in the Kendrion’s non-financial reporting is based on the information Transparency Benchmark. In the most recent ranking – which requirements of our key stakeholder groups. In order to ensure dates back to 2019 – Kendrion was ranked number 24, this that Kendrion meets its information requirements towards its has been the highest ranking Kendrion ever received. stakeholders, Kendrion performs materiality analyses at regular intervals. The most recent materiality analysis was carried out in Kendrion’s Executive Board expresses its continued support for 2020 as further described on pages 38 and 39 of this Annual the UN Global Compact and Kendrion’s ongoing commitment Integrated Report. to the initiative. This Annual Integrated Report provides a description of actions that Kendrion has taken and the Kendrion adheres to a solid validation and reporting process measures Kendrion intends to take to implement the Ten supported by an appropriate control framework in order to Principles of the UN Global Compact in each of the four areas safeguard the quality and accuracy of the non-financial data (human rights, labour, environment, anti-corruption). collected. Selected sustainability performance targets are subject to a limited assurance review by Deloitte Accountants B.V. Please refer to pages 192-194 of this Annual Integrated Report for reporting periods, definitions, scope and limited assurance review.

Being transparent and accountable is fundamental to the way in which Kendrion operates.

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Stakeholders

Customers Suppliers Employees A substantial part of Kendrion’s Kendrion expects its suppliers to adhere Our talented and highly skilled customers are Tier 1 suppliers and to the standards of the Kendrion employees play a crucial role in the way OEMs in the automotive sector and Supplier Code of Conduct and follows in which Kendrion operates its business. large industrial companies. a consistent approach towards the Kendrion fosters a culture that Kendrion’s customers are increasingly performance of implementation audits empowers its employees to reach their implementing sustainability requirements to verify compliance. These efforts full potential and to achieve the best for their suppliers. Kendrion focuses on contribute to a continuous improvement results. As reflected in ‘The Kendrion consistent compliance with these in compliance with the Supplier Code of Way’ we aspire to create an open and requirements. Conduct. inclusive culture to recruit, motivate and retain a highly diverse workforce that reflects the communities in which it operates. An engaged and committed workforce contributes to the achievement of Kendrion’s financial and non-financial targets.

Shareholders Local communities Technical universities, The endorsement of sustainable Through its local community investment schools and institutes development and addressing program ‘Together@Kendrion’, Kendrion Active engagement with students is key environmental, social and governance is making a positive contribution to the to understanding their views and (ESG) related issues is becoming reduction of social and economic gaps. observations on sustainability and forms increasingly important for Kendrion’s Kendrion appreciates the importance of a valuable platform for the exchange of shareholders. Kendrion engages with its maintaining constructive and knowledge and experiences. Dialogues major shareholders and financiers, not appropriate contacts with local with students are often inspirational and only concerning Kendrion’s global authorities. stimulate the formulation of innovative sustainability program and its material sustainability goals and ambitions. topics and objectives, but also with These dialogues also raise awareness respect to the ESG policies and among students about sustainability activities of its major shareholders and and its importance. financiers. Kendrion strives to inform its shareholders and financiers as completely and transparently as possible regarding strategy and financial performance.

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The table below describes the communication resources and channels per stakeholder and their relevance to Kendrion’s global sustainability program.

Customers Suppliers Employees

Communication resources and channels Communication resources and channels Communication resources and channels Customer and sales meetings, Kendrion websites, contract Supplier Code of Conduct, implementation audits, Kendrion Works Council meetings, meetings with employee representatives, meetings, press releases websites, supplier and contract meetings employee satisfaction and culture surveys, workshops, training Engagement with customers takes place at regular intervals Engagement with suppliers takes place at regular intervals courses, intranet, internal personnel magazine, e-mail newsletters, feedback meetings, staff and townhall meetings Topics discussed Topics discussed Engagement with employees takes place on a daily basis Quality of products and services, Kendrion’s global sustainability Quality of products and services, Kendrion’s global sustainability program and objectives, customer satisfaction, waste, energy, water program and objectives, supply chain management and joint pursuit Topics discussed use, use of rare earth materials, conflict minerals, responsible of improvements in the supply chain, responsible business conduct, Kendrion’s global sustainability program and objectives, particularly business conduct, ISO and IATF certification Supplier Code of Conduct, waste, energy, water use, use of rare regarding health and safety, employability, training and development, earth materials, conflict minerals employee satisfaction and company culture, responsible business Relevance to Kendrion’s global sustainability program conduct, compliance and ethical behaviour Obtain views and observations concerning sustainability from the Relevance to Kendrion’s global sustainability program customer’s perspective, further insight into customer needs and Obtain views and observations concerning sustainability from the Relevance to Kendrion’s global sustainability program expectations, sharing experiences and best practices, continuous supplier’s perspective, further insight into supplier needs and Obtain views and observations concerning sustainability from the improvement and development of sustainability contribution expectations, sharing experiences and best practices, continuous employee’s perspective, further insight into employees’ capabilities improvement and development of sustainability contributions and motivations, strengthening business sustainability culture, enhancing employee commitment, participation and awareness

Shareholders Local communities Technical universities, schools and institutes Communication resources and channels Communication resources and channels General Meeting of Shareholders, analyst and investor meetings, Local meetings, Kendrion websites, open days Communication resources and channels conferences, Capital Markets Day, press releases, Kendrion’s Engagement with local communities takes place at regular intervals Presence at fairs, organisation of student events, projects and corporate website internships engagement with universities, schools and institutes Topics discussed Engagement with shareholders takes place at least on a quarterly basis takes place at regular intervals Communities’ participations and investments Topics discussed Topics discussed Relevance to Kendrion’s global sustainability program Kendrion’s global sustainability program and objectives Kendrion’s global sustainability program and objectives, also with a Community connection, involvement and participation view to creating awareness and stressing the importance and Relevance to Kendrion’s global sustainability program relevance of sustainability Obtain views and observations concerning sustainability from the investor’s perspective, further insight into shareholders needs and Relevance to Kendrion’s global sustainability program expectations, sharing experiences and best practices, continuous Obtain views and observations concerning sustainability of new improvement and development of sustainability contributions generation and raise awareness

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ValueValue creationcreation model

IP A A P

inanial apital usiness output

31 Revenue 39 Net working capital 1 EBITA 19 Invested capital 1 2 11

atural apital atural apital Power 22203 W 32 Relative decrease of CO2 emissions Fuel oil 0 W compared to 2019 Natural gas 1203 W Relative decrease of energy 13 consumption compared Copper 12 to 2019 REAE AFET oial and uan apital uan apital ENTERPRISE A 3 accidents per 1,000 FTE RISK REAE 2 384 LTI (days) MANAGEMENT MOT FTEs

REAE GLOBAL Responsile usiness ondut OMFORT anuatured apital LEGAL COMPLIANCE Number of CSR AND 2 supplier audits 10000 GOVERNANCE Solutions and products FRAMEWORK REAE EAT

1 cludingExcluding oneoone-offff costs.costs Thehe bridgeridge fromfrom reportedreported to normalised figures can be found on page 31. 2 figuInvestedres can capital e found excluding on page intangibles arising on acquisitions. 2 nvested capital ecluding intangiles arising on acuisitions

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2,456 1,214 1,100 142 2,468 Total number of Direct employees Indirect employees Temporary employees Total number of employees in FTEs (number FTE) (number FTE) (number FTE) employees at 31 December at 31 December (number FTE) 2019 2,316 2019 1,205 2019 1,048 2019 63 2019 2,410 1,057 1,089 322 17 43 Women in permanent Men in permanent Employees with Overall employee Average age of employment employment a fixed-term contract turnover rate all employees (number) (number) (number) (%)

2019 1,078 2019 1,031 2019 301 2019 18 2019 43 12 4.4 46.9 0.3 Average number of years’ Illness rate¹ Wage costs per FTE Training costs service (%) (EUR 1,000) (as a % of wage costs)

2019 12 2019 4.8 2019 48.9 2019 0.6

¹ Please refer to the section ‘About the sustainability report’ on pages 197 and 198 of this Annual Integrated Report for reporting periods, definitions, scope and limited assurance review.

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We do it ‘The Kendrion Way’

Our people Kendrion Way in a single sentence: ‘A global team of actuator specialists, with courage to act, curiosity to learn from The creation of a culture and environment that empowers successes and mistakes, confidence to share, and open to everyone to reach their full potential and to achieve the best feedback’. The objective of defining The Kendrion Way is to results is central to achieving our ambitions. We empower our give our employees clear guidance as to the kind of culture we people to put their ideas into practice and to increase their aspire to build within our company, regardless of location, level engagement and performance. We aspire to create a culture of of responsibility or functional role. The Kendrion Way provides a sustainable high performance. At the same time, we foster an consistent approach towards realising our ambitions, and – as open and inclusive atmosphere and attract, motivate and retain such – is the foundation on which we build Kendrion’s future. a talented and highly diverse workforce that reflects the communities in which we operate. We are committed to giving Following the initial roll-out in 2019 of the global inter-company our people ample opportunities for career development and campaign of The Kendrion Way, additional initiatives have been personal growth in a safe and high-quality work environment. In developed and executed to further embed the behavioural this context, we focus on the following areas: values of The Kendrion Way into the organisation. Educating, ■ Promoting and maintaining a culture consistent with the training and providing concrete examples of expected values underlying The Kendrion Way; behaviours, dilemmas and actions are key to this. Dedicated ■ Developing leadership talents and capabilities; value teams have been set-up to increase awareness and to ■ Increasing diversity; support employees in their value journey and to help ■ Enhancing automation and harmonisation of systems and understand what each value means to them and the procedures; organisation. A colourful mix of interactive trainings and learning platforms has been launched to help our employees live and breathe the values of The Kendrion Way. The Kendrion Way

Kendrion’s strategy and values are symbolically captured in our Talent management strategic house that provides direction and uniformity within a clear structure. Creating long-term sustainable value with a lean Talented and skilled employees are key to the successful and focussed organisation and providing a top-quality work execution of our strategy. Our talent management strategy environment for our employees are key to our strategy. The focuses on the following key areas: attracting, selecting, foundation of our strategic house is our culture, The Kendrion recruiting and retaining talent, engaging employees, enabling Way, since no building is stable without a strong foundation, career development and providing competitive compensation regardless of the strength of its building blocks. We define The and benefits schemes.

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Our talent management and succession-planning tool identifies Our annual employee turnover rate was 17% (2019: 18%). Our and facilitates the monitoring and review of our employees. annual employee turnover rate is calculated by dividing the More specifically, the tool enables a structured development of number of employees who left Kendrion during the year by the our employees, including our future leaders who have the talent average number of employees during the year. and potential to take on senior positions. The tool also facilitates the consistent carrying out of performance reviews by Engaging employees providing clear and structured insight for employee An engaged and committed workforce is key to achieving our development. Our tool includes a competency framework that ambitions. We aspire to create an inspiring and top-quality work defines how we expect our employees to fulfil the tasks and environment for our employees. This becomes ever more responsibilities in line with their job role. Together with the skills important in a market where it is challenging to attract certain required for a certain job role, the competency framework specialists, such as in software and electronics. forms the basis of our performance reviews and determines the requirements for future vacancies. The competency framework Offering the opportunity to give and receive feedback is is updated as appropriate to increase effectiveness and imperative for maintaining an engaged and committed improve the performance review process. It helps our workforce. This is also why we conduct a Kendrion-wide managers and employees to better determine career paths and employee satisfaction and culture survey at regular intervals. needed training and development. With our talent management The most recent employee satisfaction and culture survey was Attracting and retaining talent and succession-planning tool we create an environment for our conducted in December 2018/January 2019. The survey We constantly do our utmost to attract, select, recruit employees to grow, perform and succeed in their careers. revealed – amongst others – the strong connection employees and retain the right talent. We provide a wide range of feel towards Kendrion as employer. We initially intended to learning and development opportunities and we foster Our talent management and succession planning tool has a prepare for a Kendrion-wide employee satisfaction and culture a culture of trust and recognition as reflected in The global reach and the number of employees monitored and survey at the end of 2020. However, the outbreak of the Kendrion Way. reviewed through the tool has increased consistently since its COVID-19 pandemic required our senior management to introduction. To date approximately 250 employees are increase focus on and to give absolute priority to the physical Maintaining a solid talent pipeline to ensure effective included in the tool and this number will continue to increase health and safety as well as the mental vitality of our succession management is a priority in all areas in going forward. employees. We therefore decided to defer these preparations. which we operate. We will continue to focus our resources and capital on the areas that offer the New employees are recruited through various channels, Enabling career development greatest opportunity for sustainable and profitable including employee referrals, online platforms such as Linkedin To maximise the potential of our employees and to meet their growth. One of our strategic focus areas is China, and other specialised job boards and external recruitment development needs, we advocate the principle of internal where we continue to invest substantially in our local agencies. If a vacancy arises, Kendrion will continue to identify mobility and aim to fill vacancies with internal candidates. workforce, production equipment lines and the local and look for internal and external candidates from a variety of Internal moves are considered beneficial to the development of supply chain. Triggered by the COVID-19 restrictions, backgrounds, without compromising quality and relevant our people by providing them with new and challenging advanced virtual training programs have been expertise and experience. If external recruitment consultants opportunities, while at the same time retaining knowledge developed for our Chinese R&D team with the support are engaged, Kendrion provides search instructions in line with within the organisation. In 2020, the percentage of vacancies of our German engineers. the diversity principles it endorses. filled with internal candidates was 20% (2019: 24%). Moreover,

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our culture in which the sharing of ideas, knowledge and Diversity enhancing the visibility of women in research and technology. expertise and training on the job are encouraged, contributes The global diversity program is expected to launch in the positively to the development of our employees. Our ‘Learn and We believe in the strength of a diverse workforce and the course of 2021. Share’ Kendrion Way team is responsible for a variety of importance of our management teams reflecting the diversity of learning and development programs targeted to advance skill our employee base. Diverse and inclusive teams make our Kendrion’s workforce comprised 40 nationalities (2019: 37) sets and leadership capabilities. Based on a comprehensive organisation more agile, creative and innovative. Enabling a employed in 11 countries (2019: 10) in 2020. 50% of our review that was carried out in 2020, we contemplate launching more diverse workforce – in terms of gender, nationality and workforce is female. We have a healthy balance of nationalities a new dynamic learning and development platform in 2021. background (i.e. education, (work) experience), age, etc. – also and gender across the organisation as a whole. With our new gives us access to a larger talent pool. Having the right mix of diversity program that will be introduced in 2021 we aim – We encourage the advancement of young talent to management people in the right jobs, with the right capabilities, encourages amongst others – to increase the percentage of women in roles in our business. The Kendrion High Potential program is better decision-making and helps us to grow our business. senior management positions. our global learning and development program and provides our young talents with the potential for management roles access As part of the Social and Human Capital value creation pillar of to various modules in the fields of finance, HR, negotiating, our global sustainability program, it is a priority to further Automation and harmonisation strategy, etc. The High Potential program offers development advance diversity across our organisation by training and opportunities that match business and individual needs (such developing senior management on various aspects of diversity Kendrion’s HR procedures and processes can vary per region as strengthening personal competencies). In 2020 a new group and organising Kendrion-wide diversity initiatives. As part of our due to local circumstances, customs and government of talented and ambitious employees has been selected to High Potential program, we initiated a diversity task force and regulations as well as differences in the work performed per participate in the new edition of the High Potential program. participants of the High Potential program were requested to production location. We started to actively pursue the further conduct a diversity review structured along the following automation and harmonisation of systems and procedures of The role and responsibility of senior management is key to themes: the various locations. This will allow us to better monitor the creating and maintaining an inspiring learning environment that ■ Analysis: company specific review into diversity at Kendrion development and progress of certain HR focus areas, including stimulates innovation. Leadership and personal development ■ Public perception and image: gaining insight into Kendrion’s company culture and values underlying The Kendrion Way, will always be themes of importance. Developing personal reputation to attract and retain a diverse group of development of leadership talents and capabilities and diversity. leadership, building internal knowledge networks, encouraging employees The automation and harmonisation process is ongoing. innovation and agility are important values in our management ■ Attractive employer: employer branding, including work programs and development initiatives. environment and conditions ■ Recruitment and retention: initiatives aimed at the Compensation and benefits recruitment and retention of a diverse group of employees Kendrion strives to have compensation and benefits schemes that are in line with industry standards and local practice to The outcome of the diversity review has been presented to the attract, select, recruit, and retain talent. Our compensation and Executive Board and the Supervisory Board and will serve as a benefits schemes are designed to create transparency and basis for the further development of a global diversity program fairness in the structure of both fixed and variable remuneration, with concrete measures aimed at the structural improvement of while offering a competitive package with appropriate upside diversity within Kendrion, including the improvement of the ratio potential, linked to performance. of women relative to men in senior management positions and

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Employee representation

Kendrion respects freedom of association and the right to collective bargaining. Works councils and employee representatives have been appointed at Kendrion’s largest operating companies in Germany, Romania and Austria and are involved in a wide range of employment, health & safety and social issues, in accordance with local labour legislation. Approximately 62% (2019: 70%) of all Kendrion employees are represented by these works councils and employee representatives. Approximately 67% (2019: 81%) of the employment contracts in Germany and Austria are governed by or follow the collective bargaining agreements for the metal industry in the country concerned.

Diverse and inclusive teams make our organisation The Amsterdam team more agile, creative and innovative.

Contents Profile Strategy REPORT OF THE EXECUTIVE BOARD Outlook Report of the Supervisory Board Financial statements Outlook Annual Integrated Report 2020 62 Climbing out…

The economic outlook for 2021 remains uncertain as the orderbook, which is a book-to-bill of 1.7. In China, we grew 5% in lifetime revenue to our automotive pipeline over the past COVID-19 pandemic continues to have a significant impact on organically and more than doubled our revenue with INTORQ three years, we are confident we can deliver significant organic global economic activity. Fortunately, the accelerated worldwide included. To accommodate strong anticipated growth, we have growth going forward. roll-out of vaccination programmes offers hope that in the decided to build a 28,000 m2 manufacturing facility in Suzhou’s course of 2021, we will gain control of the pandemic and can Industrial Park, a premier location for technology and advanced In Industrial Brakes, we will pursue growth in promising return to a more normal life. manufacturing companies. We also made significant progress segments such as wind power, robotics & automation, and upgrading our IT infrastructure and worked hard to further logistics. We have leading positions in all these segments and The pandemic dominated our operations and business implement our culture of global, seamless cooperation that we expect to benefit from strong and long-lasting underlying decisions throughout 2020. Looking back, the most difficult call ‘The Kendrion Way’. growth trends. In China, our new manufacturing facility will quarter was Q2, when most of our leading automotive accommodate our large and growing project pipeline. IAC will manufacturers closed for several weeks. We responded As we enter 2021, the technologic disruption of the automotive continue to focus on strong cash generation in combination forcefully and took a whole range of measures to protect industry continues. The proliferation of Autonomous, with investment in selected growth opportunities in segments our people, our profitability and our cashflow. Our financial Connected, Electric, and Shared mobility (ACES), in like inductive heating and industrial locks. measures included short-time work for both direct and combination with the ongoing push for greater safety and indirect employees, a 15% voluntary salary reduction for comfort, presents the automotive industry and Kendrion with We expect that the world will climb out of the pandemic over senior management, capital investments reduced to substantial opportunities. Kendrion Automotive, with significant the course of 2021. We are confident that the improving revenue generating projects only, and laser focus on limiting commercial and technical momentum, will continue to focus on economic circumstances, combined with our strong position in discretionary spend. We also decided to not pay out a products that benefit from these changes, such as its AVAS the growth markets of Automotive, Industrial Brakes and China dividend over 2019; a painful, but in our view necessary sound system for electric cars, a battery cooling system that will help deliver our medium-term financial targets of 5% decision. As economic activity levels improved during Q3 enhances the longevity of car batteries, and valves for smart organic growth between 2019 and 2025, an EBITDA of at least and Q4, we gradually relaxed these measures as our trading active damping systems. Having added around EUR 900 million 15% in 2025 and a ROIC of at least 25% in 2025. came back to healthier levels.

We made significant strategic progress despite the pandemic. We integrated INTORQ into our company in three months. We created the business unit Industrial Actuators and Controls (IAC) by combining former ICS and IMS Business We made significant strategic progress Units. Our intense focus in Automotive on actuators for despite the pandemic. electrified and autonomous vehicles paid off: we added a gratifying EUR 350 million in lifetime revenue to our long-term

Contents Profile Strategy Report of the Executive Board OUTLOOKOutlook Report of the Supervisory Board Financial statements Risk management Annual Integrated Report 2020 63 The Kendrion Way for risk management

The COURAGE to act while dealing with uncertainties framework fosters a culture of risk awareness across the internal control system, the Executive Board is responsible for Effective risk management is key to executing Kendrion’s organisation by identifying risks in a systematised manner and ensuring that such system is embedded in Kendrion’s business strategy, achieving long-term value for Kendrion’s stakeholders, defining appropriate controls aimed at the mitigation and practices. protecting the company’s reputation and ensuring good management of these risks in line with Kendrion’s risk appetite. corporate governance. Kendrion promotes local Kendrion’s risk management function, headed by the Internal entrepreneurship and empowers local management to exercise The Executive Board is responsible for maintaining a Audit and Risk Manager, provides guidance and support to the their associated discretionary powers. Kendrion’s risk comprehensive risk management and internal control system Executive Board. This includes driving risk awareness across management is not intended to eliminate all risks since aligned with the risks associated with Kendrion’s strategy and the Kendrion organisation and leading reviews of operational exposure to risk is unavoidable in doing business. Kendrion activities, and for regularly reviewing and supervising its processes and effectiveness of the risk management and actively conveys the need to maintain a healthy balance effectiveness. In addition to maintaining a risk management and control system. In 2020, the risk management function has between entrepreneurial spirit and risk awareness. Our objective is to adopt an approach to business risks that is consistent with our risk appetite and that minimises the probability of adverse events and the impact of such events, R IR while remaining competitive in an ever-developing business environment. The Executive Board emphasises that risk RPRI

Code of conduct management and control systems can neither offer an absolute ntiy Ide guarantee that the company’s objectives will be achieved nor A

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e e operational level. The approach to risk management interacts itigat itigat Local policies and procedures with all relevant elements in the control environment, both on the enterprise as well as on the operational level. With this consistent approach, Kendrion’s risk management and control

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increased its contribution to the organisation significantly by playing a particularly important role in redesigning the approach RI ARA RI APPI AR to risk management and by proactively supporting the identification, evaluation and mitigation of risks. trategi Entrepreneurial

The Executive Board conducts an annual risk survey and perational Innovative considers if adjustments to the risk management and internal inanial reporting Punctual control system are required, as conditions and market circumstances may change. The results of the annual risk opliane Sincere survey are assessed and discussed within Kendrion’s

Management Team and also shared and discussed with the Risk averse Risk taking Supervisory Board. In order to strengthen risk management and oversight, risk owners are assigned to the top-10 risks identified, and each risk owner is responsible for preparing and updating mitigation plans. On a quarterly basis, risk owners Risk appetite This bandwidth is defined for each of the following risk areas; report to the Executive Board on mitigation progress and risk Kendrion’s risk management framework balances risk and Strategic, Operational, Financial & reporting, and Compliance. development. This report is also shared and discussed with the opportunity and unambiguously describes the Executive The width of the bandwidth and the position on the risk Audit Committee. Board’s appetite for risk. The Executive Board and the spectrum (from risk averse to risk taking) differs for each of the Management Team periodically review and discuss Kendrion’s risk areas. The above visual shows that Kendrion is risk averse At the operational level, Kendrion’s plants hold internationally approach to risk management, as Kendrion’s risk appetite may when it comes to compliance risk exposure, whereas the recognised certifications designed to assess and improve their change over time reflecting developments in society, bandwidth for strategic risks is much broader and allows for processes. They have a responsibility to put internal controls geopolitics, the competitive and customer landscape as well as a higher degree of risk-taking in pursuit of the strategic and procedures in place and to verify their effectiveness by changes within Kendrion. objectives. testing them at regular intervals. Local management is expected to be fully aware of the operational risks and the Kendrion’s risk appetite provides an indicative bandwidth that necessity of internal controls and procedures. guides the organisation during its decision-making process.

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Risk overview

Risk area Risk name Risk description

Strategic Market disruption/decline (esp. automotive) Continued long term recession in de automotive market, of one of the key markets of the industrial segment. Prolonged global pandemic The current COVID-19 pandemic continues to impact our business environment (lockdowns, customer plant shutdowns, supply chain interruptions, economic implications) longer than currently anticipated. Unsuccessful expansion in China Difficulties in the execution of the expansion activities in China resulting in unanticipated losses and delayed or missed opportunities. Insufficient new project nominations Insufficient new project nominations to grow the business or replace sunset business. Operational Supply chain disruption Disruption in the supply chain impact ability to manufacture or deliver products in a timely manner. Significant volume decline or project cancelation Cancellation of current and upcoming projects, or significant reductions in order volumes. Order volatility Increase in the volatility of customer orders, with larger deviations in quantities and shorter notification times. IT systems and security Informations systems not being fit for purpose, becoming unavailable, or comprised, may lead to business interruptions, loss of confidential data and reputation damage. Financial & reporting Pressure from large customers Increased pressure on price and/or payment terms from large customers impacting margins and cash flow. Purchase prices increases Risk of significant increase of purchase prices could lead to additional costs.

In addition to the selected key risks described in the table Strategic risks cooling systems. We maintain a lean and flexible organisation above, Kendrion distinctively recognises risks in the compliance that can swiftly adjust to the economic tides and market trends. area. Consistent with Kendrion’s risk averse approach when it Market disruption/decline (especially automotive) This flexibility not only relates to working with temporary staff comes to compliance risk exposure, as also shown in the figure Kendrion operates in a competitive market that is exposed to and focusing on the reduction of variable operating expenses, on the previous page, Kendrion has put in place strict internal economic changes, geopolitical developments, societal but also includes the ability to communicate­ up-to-date controls on all levels of the company to manage and mitigate changes as well as market trends and industry disruptions. financial information efficiently to decision-makers throughout risks in this area. Each of the risk areas will be addressed in Market disruption, saturation (possible Peak Car in EU and the organisation, make justifiable insourcing and outsourcing more detail below. USA) or decline, especially in the automotive sector, could decisions, adjust supplier contracts, implement performance- pressure Kendrion’s financial results and the company’s ability dependent employee benefits, work with flexible hour contracts to achieve its strategic goals. We will continue our research and and use opportunities to reduce working hours in specific development efforts with a view to increase potential revenue countries. The composition of the group with about 55% content per car and by focussing our resources on developing automotive activities and 45% industrial activities reduces product platforms that will benefit from an increased application Kendrion’s exposure to a market disruption or decline in one of uptake, such as active suspension and AVAS and battery the markets.

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Prolonged global pandemic Kendrion China has recruited additional talented and ambitious a continuous focus on optimizing supply chains and production A longer than currently anticipated impact of the current employees in the areas of development, industrial engineering, processes the competitiveness of Kendrion is monitored, while COVID-19 pandemic on Kendrion’s business environment quality, and supply chain. Going forward Kendrion continues to also guarding quality and dependability. (lockdowns, customer plant shutdowns, supply chain invest in the Chinese workforce to accommodate its growing interruptions, economic implications) could impact Kendrion’s revenue pipeline. Exchange programs between the Kendrion operational performance and financial results. We develop and development centres in Germany and China to share Operational risks update scenario analyses at regular intervals to estimate knowledge have been replaced by online training platforms as potential (financial) impacts, and accordingly implement and COVID-19 continues to impose travel restrictions. The Supply chain disruption – as needed – adjust strict operating procedures to ensure execution of the China growth strategy is closely monitored to Kendrion is dependent on a continuous supply of (raw) continuation of production in a safe and responsible manner, limit risk of delayed detection of deviations from expected materials for its plants to operate and to be able to meet and focus on cost control and working capital management to activities or outcomes. is In 2020, Kendrion has decided to customer demands and expectations.. The supply chain of protect our financial position and liquidity. In addition, build a new 28,000m2 factory to enable future growth. The (raw) materials can be disrupted in many ways, from issues a prolonged pandemic would also continue to limit possibilities factory will be built in the Suzhou Industrial Park area, which is during transport, to a bankrupt supplier, to scarcity of certain to interact with customers, implement organisational changes a prime location for technologically advanced businesses. materials. Kendrion actively endeavours to increase the number or operational improvements, and facilitate internal and external of alternative sources for its most important (raw) materials, staff development and knowledge sharing. Working from home Insufficient new project nominations while always making sure that (raw) materials are purchased is promoted where possible and facilitated with required IT A substantial part of Kendrion’s revenue is generated with from reputable suppliers. Quantities are generally secured via equipment and digital connectivity. Online environments to customer projects that run for multiple years and generally advance capacity confirmations and regular financial quick connect with (future) customers, such as online fairs, are require one to two years of development and preparation checks are performed to assess the solvency of suppliers. explored and have already proven to be valuable. Staff before production starts and revenue is generated. This is Suppliers that are critical to Kendrion’s supply chain have been engagement is cultivated by increased communication, and particularly the case in Automotive. If Kendrion does not secure identified and are actively monitored in order to secure online possibilities for personal and professional development sufficient new project nominations to replace or exceed projects continuity of the supply chain. Kendrion predominantly uses will be rolled out in 2021. Kendrion will continue to comply with that will retire in the next few years, it will not be able to local supply chains for local production and revenue, and when local regulations related to safety and hygiene to secure a safe maintain the current level of revenue or succeed in its growth certain materials have a single supplier, contingency measures working environment for all staff that need to be present at ambition. To increase its success rate in project nominations, are discussed (e.g. insourcing when possible, active periodic production facilities. Kendrion focusses on strengthening relationships with key moni­toring of critical suppliers) to ensure the exposure is within customers and is in constant communication with its main Kendrion’s risk appetite and swift action is possible when Unsuccessful expansion in China customers to make sure their demands and expectations are required. In case disruptions in the supply chain do occur, Kendrion has significantly increased its revenue in China in included in innovation initiatives. As such Kendrion continuous the customers affected by this disruption will be informed recent years and continues to pursue its growth strategy and to invest in developing actuators that help enable Autonomous, immediately and solutions will be discussed. related expansion of activities by increasing local production, Connected, Electric and Shared mobility, also known as ‘ACES’ supply chain and development capabilities. Difficulties in the which are assumed to increase project nominations in the execution of these expansion activities could result in coming years. This is supported by maintaining or increasing unanticipated delays and increased costs. Delays in the relevant R&D capacity and capabilities, such as the expansion activities may also result in delayed or missed establishment of an automotive software competence centre, opportunities and related revenues. Over the past years and the development of sales capacity and competence. With

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Significant volume decline or project cancellation IT systems and security It is critical that all operating entities report to the same External events such as the current COVID-19 pandemic and Kendrion recognises that more and more of its own activities standards and deliver the same quality of reporting, in line with related economic downturn or changes in regulations or and customer demands are becoming data-driven. This applicable accounting and reporting principles. There are local preferences, can cause certain customers to experience a requires existing infrastructure and/or software to be updated, planning and control cycles that provide financial and non- steep decline in the demand for their products. There is a risk or new IT infrastructure and/or software to be implemented, in financial information to the group based on standardised that this will result in a similar decline in their order volumes or order to facilitate the required changes in the organisation. With reporting formats on a weekly, monthly, or annual basis, based even the cancellation of projects altogether. Kendrion this also comes an increased dependency on IT systems and on a group reporting manual (last updated in 2020). undertakes to negotiate contractual terms that ensure that an increased exposure to cyber-attacks. Kendrion has ensured On a quarterly basis, all responsible officers provide a letter sales prices per product will increase when volumes are redundancy in network and uninterrupted power supply and of representation confirming the correct and complete reporting reduced, and that investments (e.g. development, tools and critical software runs on high availability infrastructure with of financial and non-financial information and the absence of equipment) are reimbursed if contracts are cancelled. However, disaster recovery in place. Kendrion is in the process of further material violations of applicable laws, rules, and regulations, this will not be sufficient to offset all the expenses incurred or streamlining its IT systems and support on a global level, along with internal policies such as the Kendrion Code of compensate for loss of revenues. Demand levels are closely increasing scalability, while also increasing the level of security Conduct. This also includes continuous monitoring of monitored to timely detect overcapacity and production by leveraging the capabilities of our IT services providers. upcoming changes in accounting and/or reporting standards, capacity and purchase volumes are adjusted accordingly to IT security is also strengthened by awareness campaigns on laws and regulations, and periodic discussions with responsible mitigate the impact on profit and working capital. IT security topics such as password security and phishing, finance leaders and senior management within the business targeting all employees, quarterly security reviews and units. Order volatility maintaining a security calendar with key security activities. Mainly driven by the recent economic conditions, customers There is an ambitious IT strategy that will continue to be rolled Apart from the key financial & reporting risk mentioned above, require the reduction of working capital levels, incentivising the out in the next year to both increase uniformity within the Kendrion also recognises financial & reporting risks related to reduction of their stock. There is an increased risk that company and strengthen IT systems further, and explore how debt financing, credit exposure and interest and exchange rate customer orders are adjusted to actual consumption levels, their value can be increased for both Kendrion and its fluctuations (refer to pages 151-160 and following of the resulting in ad-hoc and unpredictable adjustments to order customers. financial statements for an outline of Kendrion’s financial market levels. This may result in significant and short-term fluctuations risks and the policy for mitigating those risks or their impact). in demand, requiring short-term plant capacity adjustments. In Kendrion has proportionate mitigating measures in place for turn, this may result in additional costs for underutilised plant Financial & reporting risks these risks, which are monitored on different levels within the capacity or in an increase in production backlog due to company. insufficient production capacity. Kendrion focusses on As a globally operating publicly listed company, Kendrion must strengthening relationships with key customers and is in comply with financial reporting requirements. Material Pressure from large customers constant contact with customers to actively monitor misstatements in reporting could affect Kendrion’s reputation Customers in all segments of the company are experiencing the developments and changes to order volumes and timing where and/or stock market value. Kendrion reports to the market on effects of the COVID-19 pandemic and its economic possible. Kendrion continuously adapts its production and a quarterly basis, and reports financial figures based on IFRS consequences, including the impact of restrictive measures supply chain planning to movements in day-to-day orders and standards. With the risk appetite for this risk area being on the imposed by governments. Key and other customers that the roll-out of predictive planning tools have enabled an averse side of the spectrum, Kendrion has several controls in represent a significant part of Kendrion’s revenue may demand increased flexibility in production while maintaining a high level place that help to contain risk exposure within acceptable more favourable terms for their business. This may manifest of efficiency. boundaries. itself in the form of re-negotiations on price or other adverse

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changes to contractual conditions, such as shortening of statutory filing requirements, applicable in the countries in Letter, in which the external auditors reported a limited number payment terms. This may have an impact on margins and/or which it operates. Senior management is responsible for raising of findings and no findings that qualified as significant. cash flow. Kendrion aims to maintain and protect its contractual awareness of, and applying, applicable laws and regulations. position and reject unreasonable changes to existing terms, Global and local policies are developed and maintained to while valuing and preserving business relations. By consistently support compliance. Kendrion’s global policies include a range In control statement delivering qualitative products according to customer of procedures and policies that always need to be applied expectations against a competitive proposition, Kendrion aims when conducting business such as a Code of Conduct, Insider Based on the approach described above, the Executive Board to satisfy its customers while also remaining profitable. Trading Code, Speak-up procedure, etc. is of the opinion that, to the best of its knowledge: ■ the Report of the Executive Board provides sufficient Increases in purchasing prices The new Code of Conduct that was introduced in 2020 builds insights into any failings in the effectiveness of the risk The gross margin of Kendrion could be impacted by on the values of The Kendrion Way, an inspiring motto at the management and internal control systems; fluctuations in the prices of raw materials. Kendrion aims to heart of the Kendrion organisation. The Code of Conduct ■ the risk management and internal control systems provide minimise the financial impact of price fluctuations for those provides a set of principles and expectations that guide the reasonable assurance that the financial reporting, including materials that are most relevant. The most important (raw) behaviour of all those who belong to Kendrion. Guidance and tax, does not contain any material inaccuracies; materials for Kendrion are machined steel parts, raw steel, training are provided to Kendrion employees on recognizing ■ based on the current state of affairs, it is justified that the copper and permanent magnets. Where feasible, Kendrion compliance dilemmas and on raising actual or suspected financial reporting is prepared on a going concern basis; concludes fixed-price arrangements with steel suppliers and misconduct or irregularities under Kendrion’s Speak-up and suppliers of machined steel parts. Many key long-term procedure. ■ the Report of the Executive Board states those material customer contracts contain copper price clauses, that provide risks and uncertainties that are relevant to the expectation for a sales price adjustment when the actual average copper For more information about The Kendrion Way see pages 47, of Kendrion’s continuity for the period of twelve months price over a certain timeframe deviates from a predetermined 58-61 of this Annual Integrated Report. after the date of the Report of the Executive Board. base price. In cases where the copper price risk is not passed on to the customer, Kendrion usually fixes the purchase price Compliance with Kendrion’s internal policies and procedures, Properly designed and implemented risk management and for some quarters in advance. In most cases, agreements for and with local laws and regulations is also reviewed by internal control systems significantly reduce, but cannot fully products that contain permanent magnets provide for Kendrion’s internal audit function. The Global Internal Audit and eliminate, the possibility of human errors, poor judgement, automatic price adjustments based on movements in the price Risk Manager is responsible for the design and execution of the deliberate circumvention of controls, fraud or infringements of of these permanent magnets. annual audit plan in order to assess the adequacy of Kendrion’s laws, rules or regulations, or the occurrence of unforeseeable internal control systems. The Global Internal Audit and Risk circumstances. Another factor considered within risk manage­ Manager reports to the Executive Board with direct and ment is that efforts related to risk management and internal Compliance risks independent access to the Audit Committee and external control systems should be balanced against the costs of auditor. Audit results are reported to the Executive Board and implementation and maintenance. Kendrion commits to conducting business in accordance with the essence of the results are reported to, and discussed with, its Code of Conduct and the values underlying the Code of the Audit Committee and external auditors on a regular basis. Conduct, laws and regulations, including employment laws, The results of the audits conducted in 2020 were discussed data protection laws and regulations, accounting standards, tax with local management and any control deficiencies have been laws, health and safety regula­tions as well as governance and addressed. This conclusion is in line with the Management

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The governance framework of Kendrion is based on the directly or indirectly, holds the shares in all of Kendrion’s The Executive Board is accountable to the Supervisory Board statutory requirements applicable to public limited liability operating companies. All operating companies are, directly or and the General Meeting of Shareholders. Important resolutions companies in the Netherlands, including the principles of the indirectly, wholly owned subsidiaries. Kendrion N.V. is not subject of the Executive Board require the approval of the Supervisory Dutch Corporate Governance Code (the ‘Code’)* and to the large company structure regime and no works council Board. Kendrion’s articles of association as lastly amended 25 June having jurisdiction over Kendrion N.V. has been established nor 2020. The core topics of the Code are addressed in the various is there a statutory requirement to establish such a works council. With due regard to the requirement under Kendrion’s articles of sections of this Annual Integrated Report. For example, Reference is made to section People & Culture on pages 58-61 association that the Executive Board must consist of at least diversity in the Supervisory Board, the Executive Board and the for information about works councils and employee represen­ two members, the Supervisory Board determines the number Management Team is addressed in this Corporate Governance tation established at certain of Kendrion’s operating companies. of members of the Executive Board. Report on pages 71 and 72. ‘The Kendrion Way’ is described in the section ‘Sustainability’ on page 47 and in the section The General Meeting of Shareholders appoints the members of ‘People & Culture’ on pages 58-61. The articles of association Two-tier governance structure the Executive Board upon nomination of the Supervisory Board. together with ancillary policies such as the Supervisory Board In compliance with provision 2.2.1 of the Code, all members of regulations and the Supervisory Board committee regulations The Executive Board, consisting of the CEO and the CFO, is the Executive Board are appointed for a maximum term of four provide a tailored framework for the affairs and governance of entrusted with the management of Kendrion, under supervision years and may be reappointed for a term of not more than four Kendrion, including a sound and transparent system of checks of the Supervisory Board. Members of the Executive Board and years at a time. The diversity objectives as described in and balances. For the articles of association, the Supervisory the Supervisory Board are appointed and dismissed by the Kendrion’s diversity policy for the Executive Board will be Board regulations, the Supervisory Board committee General Meeting of Shareholders. The General Meeting of considered when selecting persons for (re)appointment as regulations and additional information about Corporate Share­holders can amend the articles of association if and as member of the Executive Board. The diversity policy can be Governance at Kendrion, please visit the corporate website proposed by the Executive Board, with the prior approval of the found on the corporate website at www.kendrion.com. Other at https://www.kendrion.com. Supervisory Board. The decision to amend the articles of than upon a proposal of the Supervisory Board, the members association requires an absolute majority of the votes cast at of the Executive Board are dismissed by the General Meeting of Kendrion N.V. the General Meeting of Shareholders. Shareholders by a resolution adopted by an absolute majority Kendrion N.V. is a public limited liability company incorporated representing at least one-third of the issued share capital. under the laws of the Netherlands, with its corporate seat in Amsterdam, the Netherlands. For details regarding Kendrion Executive Board The members of the Executive Board satisfy the statutory N.V.’s share capital, reference is made to section ‘Share and requirements concerning the number of supervisory or non- shareholder information’ on pages 21-23. The Executive Board is responsible for the management and executive functions that they can have with large enterprises. the continuity of Kendrion and Kendrion’s long-term value Kendrion N.V., as the ultimate parent company, holds all the creation strategy, objectives, results and policy, including the The composition of the Executive Board and information about shares of Kendrion Finance B.V., a private limited liability company responsibility for defining and setting overall strategic Corporate its members is provided on page 24. incorporated under the laws of the Netherlands, with its Social Responsibility objectives. corporate seat in Zeist, the Netherlands. Kendrion Finance B.V.,

* The Code can be found on the website of the Corporate Governance Code Monitoring Committee https://www.mccg.nl/.

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In accordance with the Code, the severance payment for The Management Team meets frequently and those members the former IMS and ICS Business Units into the new Industrial members of the Executive Board shall not exceed the annual of the Management Team who are not also members of the Actuators and Controls Business Unit, improvement of the IT base salary. Executive Board are regularly invited to attend Supervisory function and infrastructure with special focus on digitalisation Board meetings. The Chairman of the Supervisory Board has and standardisation and continuous improvement of Kendrion’s A member of the Executive Board does not participate in the annual meetings with each member of the Management Team. global sustainability program. In addition to reviewing past deliberation and decision-making process concerning any performance, the Management Team considered the 2021 subject in which a member of the Executive Board has a The outbreak of the COVID-19 pandemic required the strategic and operational spearheads. In its annual review personal interest that conflicts with the interests of Kendrion. Management Team to convene numerous extraordinary meeting, the Management Team furthermore reflected on the A member of the Executive Board shall immediately report a meetings to address and manage the crisis and the related updated Risk Management Framework, including fraud conflict of interest to the Chairman of the Supervisory Board. risks. In managing the crisis, the health and safety of employees prevention and fraud risk management. Outside the presence Decisions to enter into transactions in which there are conflicts and their families has been a constant priority. Likewise, of the other members of the Management Team, the Executive of interest with a member of the Executive Board require the safeguarding the continuity of Kendrion has been a key priority. Board evaluates the functioning of the Management Team and approval of the Supervisory Board. There were no transactions Various scenario analyses to estimate the potential financial its members, and discusses the conclusions that must be in which there was a conflict of interest with a member of the impact of COVID-19 were carried out and existing contingency attached to the evaluation, also in view of succession planning Executive Board in 2020. Kendrion does not grant loans or plans were adjusted as and when needed. While managing the and the composition of the Management Team taken as a guarantees to Executive Board members. short-term by implementing strict operating procedures to whole. Having regard to the feedback and recommendations of ensure the continuation of production in a safe and responsible the Executive Board, the Supervisory Board considers the manner and focussing on cost control to protect Kendrion’s functioning of the Management Team and its members. Management Team financial position and liquidity, the Executive Board together with the Management Team did not lose sight of the long-term The Management Team consists of the CEO, the CFO and perspective and accordingly prioritised its capital investments, Supervisory Board several executives with clear accountability to deliver on all components of the strategic plan. Key functional focus areas of The members of the Executive Board, together with the other The Supervisory Board supervises and advises the Executive the Management Team include Automotive Commercial, members of the Management Team, conducted an online Board on the performance of its tasks and duties and super­ Automotive Operations, Automotive Finance, China, Information annual review of their individual performance and the vises the overall development and performance of Kendrion. In Technology, People, Sustainability and Compliance. In addition, performance of the Management Team as a collective, discharging its role, the Supervisory Board is guided by the the Business Unit Managers of the business units Industrial including the dynamics of and the relationship among the interests of Kendrion and its stakeholders and focuses on Brakes and Industrial Actuators and Controls are represented members of the Management Team and the Executive Board – among other things – the effectiveness of Kendrion’s risk on the Management Team. The Executive Board decides the as well as the interaction with the Supervisory Board. Special management and internal control systems and the integrity and number of members of the Management Team in consultation consideration was given to the 2020 strategic and operational quality of the financial reporting. with the Supervisory Board. The members of the Management spearheads, including the integration of INTORQ’s brake Team who are not Executive Board members are appointed activities and the former IDS Business Unit into a single The Supervisory Board is composed in such a way that its and dismissed by the Executive Board, subject to consultation Industrial Brakes Business Unit, improvement of operational members can operate critically and independently of each other, with the Supervisory Board. The diversity objectives as performance across the Automotive plants and the addition of the Executive Board, the Management Team, and any other described in Kendrion’s diversity policy for the Management at least EUR 350 million in total nominations to the Automotive particular interests. Each of the Supervisory Board members Team will be considered when selecting persons for (re) long-term orderbook, develop­ment of commercial, R&D, has the necessary expertise, experience and background to appointment as member of the Management Team. purchasing and operational capa­bilities in China, the merger of perform his or her tasks and duties and its composition is

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consistent with the ‘Profile outline’ for the Supervisory Board practice provision 2.2.2 of the Code regarding appointment and the evaluation is discussed among the members of the and the diversity objectives described in Kendrion’s diversity reappointment periods. Each member of the Supervisory Board Supervisory Board and the Chairman subsequently informs the policy for the Supervisory Board. Both the ‘Profile outline’ and can be dismissed by the General Meeting of Shareholders. Executive Board as appropriate. For further information the diversity policy for the Supervisory Board can be found on regarding the annual evaluation of the Supervisory Board, the corporate website at https://www.kendrion.com. New members of the Supervisory Board follow an introduction reference is made to the Report of the Supervisory Board on program to get sufficiently acquainted with Kendrion, its pages 77-84 of this Annual Integrated Report. The Supervisory Board consists of four members. All members business activities as well as certain internal procedures and of the Supervisory Board are independent within the meaning processes necessary for the discharge of their duties as The members of the Supervisory Board do not receive nor do of the Code. The members of the Supervisory Board satisfy the members of the Supervisory Board. they have any shares and rights to acquire shares in Kendrion statutory requirements concerning the number of supervisory or as remuneration. Kendrion does not grant loans or guarantees non-executive functions that they can have with large Meetings of the Supervisory Board are usually attended by the to Supervisory Board members. Pursuant to the Supervisory enterprises. Executive Board and at regular intervals by members of the Board regulations, a member of the Supervisory Board may not Management Team. The Company Secretary supports the participate in the deliberation and decision-making process The General Meeting of Shareholders appoints the members of Supervisory Board. The Company Secretary ensures that concerning any subject in which a member of the Supervisory the Supervisory Board on the recommendation of the Supervisory correct procedures are followed and that the statutory obliga­ Board has a personal interest that conflicts with the interests of Board for a period of four years. The Supervisory Board elects tions and obligations under the articles of association are Kendrion. There were no transactions in which there was a a Chairman from amongst its members. The Chairman chairs complied with. Furthermore, the Company Secretary facilitates conflict of interest with a member of the Supervisory Board in the meetings of the Supervisory Board and ensures the proper the provision of information between the Executive Board and 2020. functioning of the Supervisory Board and its committees. The the Supervisory Board, and supports the Chairman of the Chairman of the Supervisory Board also ensures that the Supervisory Board in the organisation of the affairs of the Supervisory Board has proper contact with the Executive Supervisory Board. Diversity within the Executive Board, Board, the Management Team and the General Meeting of Management Team and Supervisory Board Shareholders. Furthermore, the Chairman of the Supervisory The Supervisory Board has established two committees: an Board maintains regular contact with the CEO concerning Audit Committee and an HR Committee. The committees of the Kendrion values a diverse workforce both across the Kendrion matters relating to the responsibilities of the Supervisory Board. Supervisory Board are responsible for preparing the decision- organisation as a whole and at the level of the Executive Board, Similarly, the Chair of the Audit Committee maintains regular making of the Supervisory Board. The tasks and procedures of the Management Team and the Supervisory Board. Under the contact with the CFO concerning matters relating to the the committees of the Supervisory Board are set out in their value creation pillar ‘Social and Human Capital’ that forms part responsibilities of the Audit Committee. regulations, which can be found on the corporate website at of Kendrion’s Corporate Social Responsibility program, the https://www.kendrion.com. The composition of the Supervisory further advancement of diversity across the organisation is a The members of the Supervisory Board step down by rotation Board, its committees and information about the Supervisory priority. A diverse range of competences and skills and a variety pursuant to a schedule adopted by the Supervisory Board. Board members is provided on page 74 of this Annual of backgrounds within the Executive Board, the Management Members of the Supervisory Board who step down can be Integrated Report. Team and the Supervisory Board contribute to effective reappointed. These reappointments take account of the manner decision-making and consequently value creation. Kendrion in which the candidate performed his or her duties as a member The Supervisory Board annually evaluates its own functioning, considers diversity aspects of gender, nationality and of the Supervisory Board, the diversity objectives as described the functioning of the Supervisory Board committees, and that background (education, (work) experience) most relevant for in Kendrion’s diversity policy for the Supervisory Board and best of the individual Supervisory Board members. The outcome of Kendrion and its business. On the basis of the various diversity

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aspects considered, Kendrion is committed to further progress General Meeting of Shareholders Special provisions relating to shares its approach to diversity in the Executive Board, the Management Team and the Supervisory Board consistent with At least once a year, Kendrion convenes a shareholder meeting. Unless indicated otherwise, there are no restrictions on the Kendrion’s diversity policy for the Supervisory Board, Executive Meetings are convened by the Executive Board and/or Super­ transfer of shares, the exercise of voting rights or the term for Board and Management Team and to develop new diversity visory Board. Meetings can also be convened at the request of exercising those rights, and there are no special controlling objectives and initiatives. Kendrion’s diversity policy can be shareholders jointly representing at least 10% of Kendrion’s rights attached to shares. On 24 June 2020, the General found on the corporate website at https://www.kendrion.com. issued share capital if authorised by the competent Dutch court. Meeting of Shareholders granted the Executive Board the Shareholders who hold at least 3% of the issued share capital authority to: (i) issue shares or grant rights to acquire shares If a vacancy arises, Kendrion will continue to identify and look have the right to propose an item for inclusion on the agenda. and restrict or exclude pre-emptive rights in relation to the issue for internal and external candidates­ for positions on the Kendrion will in principle include the item on the agenda if it has of shares or the granting of rights to acquire shares; and (ii) Executive Board, Management Team and the Supervisory received the substantiated proposal clearly stating the item to acquire shares in Kendrion N.V. within the limits prescribed by Board from a variety of backgrounds, without compromising be discussed, or a draft resolution, in writing, at least 60 days the articles of association and the applicable statutory quality and relevant expertise and experience. If external prior to the meeting date. Each shareholder is entitled to attend provisions, in each case for a period of 18 months from the recruitment consultants are engaged, Kendrion provides search shareholder meetings in person or be represented by written date of the General Meeting of Shareholders (i.e. until instructions in line with the diversity principles it endorses. proxy and exercise voting rights in accordance with the 24 December 2021) and subject to the prior approval of provisions of the articles of association. the Supervisory Board. When preparing for the appointment of Mr. Erwin Doll and the reappointment of Mrs. Marion Mestrom as members of the Each outstanding share entitles the holder to one vote. Resolu­ Supervisory Board, due consideration has been given to a tions are adopted by absolute majority of the votes cast, unless Auditor variety of criteria and circumstances, explicitly including the the articles of association or applicable law provide otherwise. diversity objectives described in the diversity policy as well as Before being presented to the General Meeting of Shareholders the requirements of the ‘Profile outline’ for the Supervisory Shareholders representing 67.95% (2019: 64.57%) of the total for adoption, the annual financial statements as prepared by Board. The composition of the Supervisory Board is diverse, number of shares entitled to vote were represented at the the Executive Board must be audited by an external certified experienced and knowledgeable and reflects a balanced online General Meeting of Shareholders held on 24 June 2020. public auditor. The General Meeting of Shareholders has the participation of two men and two women. authority to appoint the auditor. On 9 April 2018, the General For more information about the authority of the General Meeting Meeting of Shareholders reappointed Deloitte Accountants B.V. The Executive Board consists of two men. The diversity of Shareholders and the articles of association, please visit the for a second period of three years (i.e. for the 2018 to 2020 objectives as described in Kendrion’s diversity policy for the corporate website at https://www.kendrion.com. financial years). The General Meeting of Shareholders may put Executive Board as well as functional requirements, quality, questions to the external auditor with respect to the external expertise and experience will be considered when selecting auditor’s opinion on the financial statements. The external persons for (re)appointment as member of the Executive Board. auditor shall therefore attend and be entitled to address the General Meeting of Shareholders. The Management Team comprises a healthy mix of skills, nationalities, ages, backgrounds and other relevant factors.

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Kendrion has an internal audit function that operates under the Corporate Governance statement includes VAT, wage withholding tax, social security contributions, responsibility of the Executive Board, with reporting lines to the dividend withholding tax, real estate tax and any other taxes CFO and the Audit Committee of the Supervisory Board. The This Corporate Governance Report and the section ‘Share and that are payable by Kendrion in the relevant jurisdictions. Kendrion role of the internal audit function is to assess the design and shareholder information’ on pages 21-23 include the does not seek to establish aggressive tax driven structures that the operation of the internal risk management and control information referred to in the Decree for the implementation of are not compliant with applicable tax regula­tions. This means systems. In line with the Code, the Executive Board and the article 10 of the Takeover Directive. In addition, this Corporate that Kendrion does not pursue any aggressive tax planning or Audit Committee of the Supervisory Board are involved in the Governance Report in combination with the section ‘Risk has entities established in tax haven jurisdictions solely for tax preparation and approval of the internal audit plan. The annual mana­ge­ment’ on pages 63-68 and Report of the Supervisory optimisation purposes and without commercial substance. internal audit plan will be submitted to the Executive Board and Board on pages 77-84 should be regarded as the Corporate the Supervisory Board for approval. Internal audit reports are Governance Statement required pursuant to the Decree on the Kendrion strives to be transparent towards tax authorities and discussed with the Executive Board and with the Audit contents of the management report (Besluit inhoud builds and maintains a professional relationship with the tax Committee, and the external auditor is informed accordingly. bestuursverslag). authorities. If and when appropriate, tax authorities are ­ consul­ted in advance on certain material transactions or For the management statement of the Executive Board which is Relevant documents on corporate website business re­­struc­turing in order, for instance, to ascertain required pursuant to article 5:25c of the Financial Supervision ■ Articles of association; compliance with the applicable tax regulations. Kendrion makes Act (Wet op het Financieel Toezicht), reference is made to the ■ Supervisory Board regulations and committee regulations; tax-related disclosures in accordance with the applicable ‘Report of the Executive Board’ on page 36. ■ Diversity policy for the Supervisory Board, Executive Board statutory regula­tions and applicable reporting requirements and Management Team; and standards, such as IFRS. ■ ‘Profile outline’ for the Supervisory Board; Agreements in the meaning of the Decree for ■ Insider Trading Code; Key controls are in place to identify, monitor and address the implementation of article 10 of the ■ Policy on bilateral contacts with shareholders; (potential) tax risks with a view to mitigating and avoiding these Takeover Directive (Besluit artikel 10 ■ Code of conduct; risks. Accredited tax advisors are consulted and involved in the overnamerichtlijn) ■ Speak-up procedure. review and preparation of material corporate income tax returns, if appropriate. Tax compliance is part of Kendrion’s The credit facility of Kendrion N.V. includes a change of control Taxes internal audit plan and material tax risks and topics, including provision. An early repayment obligation is triggered if a party Kendrion’s tax policy is based on the core values embedded in Kendrion’s tax policy, are reported to and discussed in the acquires more than half of Kendrion’s issued share capital or Kendrion’s Code of Conduct and aligned with Kendrion’s Audit Committee. voting rights. strategy and the rationale underlying the value creation pillar ‘Responsible Business Conduct’, which is part of Kendrion’s The effective tax rate of Kendrion or any of its affiliates is not a global sustainability program. key performance indicator for Kendrion’s finance and tax department nor do individual bonus schemes contain effective Taxable profits are recognised in jurisdictions in which value is tax rate performance targets. The effective tax rate for 2020 of created, in accordance with the applicable tax regulations and 24.6% underlines Kendrion’s responsibility to society with standards, including the OECD Guidelines for Multinational regard to taxation. Information about the reconciliation of the Enterprises and local transfer-pricing and other applicable tax effective tax rate can be found on page 168 of this Annual regulations. Tax is not limited to corporate income tax but also Integrated Report.

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H. ten Hove (Chairman) J.T.M. van der Meijs M.J.G. Mestrom E. Doll

Year of birth 1952 1966 1961 1959 Nationality Dutch Dutch Dutch German International expertise Yes Yes Yes Yes Gender Male Female Female Male Date of first appointment 19 August 2013 31 October 2016 11 April 2016 24 June 2020 Term of office 2017-2021 (2nd term) 2019-2023 (2nd term) 2020-2024 (2nd term) 2020-2024 Current number of SB positions 3 (2 Chair) 3 1 2 Shares in Kendrion No No No No Professional experience Manufacturing/industry Finance HR/organisational design Automotive

Additional positions Chairman of the Supervisory Board of EVP & CFO of Royal Schiphol Chief Human Resources Officer at Non-executive member of the Board Alfen N.V.; member of the Supervisory Group; non-executive member of Brenntag AG of Directors of Aeristech Ltd.; Boards of Unica Groep B.V.; Chairman of the Board of AdP (Aéroports de member of the Supervisory Board of the Foundation BDR Thermea Paris); non-executive Director of the WITTE Automotive Board of Brisbane Airport, non- executive Director & Chair of People and Remuneration Committee of Koole Terminals

Former positions CEO of Wavin N.V. Vice-President Finance (Capital Head of Global Human Resources Vice-Chairman of Röchling Group; Projects) at Shell Global Solutions; at Siegwerk Druckfarben Group; CEO of Röchling Automotive; Finance Director at Shell Australia; Senior Global Human Resources Vice-President and Managing Financial Controller/Deputy Finance positions within Royal Philips Director at Plastic Omnium; Director at the Brunei Shell General Manager at Johnson Companies Controls; Business Manager at BASF

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On-track despite COVID-19 challenges

2020 has brought many challenges. It has been a year of China recovered quickly from COVID-19. As our Chinese plants prioritizing the health and safety of our employees and keeping reverted to ‘business as usual’ from Q2 onwards, we expect our operations afloat while continuing to work on our growth to continue as originally anticipated. Expanding our opportunities for future growth. Although revenue started to China operations and increasing local resources and recover in the second half of the year and the roll out of capabilities continue to be top priorities and although COVID- vaccination programs has given cause for optimism, the effect 19 caused some delays, we expect to be back on track in of the pandemic on societies and economies will continue to be 2021. felt for the time to come. Amidst the turmoil, we have been able to stay on track towards achieving our long-term goals, while Throughout the year, and despite limited in-person meetings, our balance sheet has remained strong. we continued our integration plans. The former Industrial CHAIRMAN OF THE SUPERVISORY BOARD Magnetic Systems and Industrial Control Systems business Henk ten Hove A swift response to keep employees safe units were merged into the new Industrial Actuators and The health and safety of our employees is always our priority, Controls business unit. The Automotive Group further but when COVID-19 globally hit in March 2020, it took on new strengthened and increased its global capacity and agility. urgency. Management responded swiftly and decisively, INTORQ’s brake activities and our former Industrial Drive enabling working from home for employees where possible and Systems business unit were integrated into a single Industrial providing a safe working environment for our employees in the Brakes business unit to enhance our strong position in the production facilities. Despite our efforts, we experienced a global market for brakes. surge in COVID-19 cases in October and November 2020, and tragically lost one colleague. Financial results: ending on a positive note Our solid Q1 figures showed we were off to a good start in On target to meet our goals 2020, but plans needed to be adjusted drastically when the The automotive business was most affected by the pandemic pandemic started to spread throughout Europe and the US. It with many of its customers shutting down operations in April forced many of our customers to shut down their operations. In and May 2020. Notwithstanding the COVID-19 crisis, the response, management carried out various scenario-analyses accelerating innovation evolution in Autonomous, Connected to estimate the potential financial impact of the COVID-19 crisis and Shared driving (the so-called ACES) is increasing demand and based on which a range of measures have been for our e-mobility products, which has contributed to achieving implemented with a view to protecting Kendrion’s financial a healthy number of nominations. position and cashflow. Measures have included short-time work

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for our European facilities and a 15% voluntary salary reduction cashflow management and contingency plans. In addition, for senior management. We also limited discretionary spending weekly update calls with all Kendrion locations worldwide have and suspended uncommitted capital expenditures. Some of kept everyone informed and connected during a time of these measures have been relaxed during Q3 and Q4 when uncertainty. In the first phase of the COVID-19 pandemic, also revenue gradually recovered, ending the year on a more the Supervisory Board and the Executive Board maintained positive note. The acquisition of INTORQ proved a good regular contacts to keep abreast of key developments. decision, giving us stronger-than-expected results and Kendrion’s IT organization eased the switch to digital enhancing the balance between our Automotive and Industrial collaboration by accelerating the roll-out of new communication activities. tools.

Keeping a close eye on costs and cashflow, we did not Transparency and communication also helped us to keep the compromise on our long-term strategy. We continued to invest full confidence of our shareholders. The Supervisory Board is in China and the optimization of our European manufacturing confident that the ongoing commitment to Kendrion’s long-term footprint and focused our R&D resources on our key strategy, the healthy balance between our Automotive and Lighthouse projects. Industrial activities and the growing number of nominations will help accelerate our business when the market returns to a ‘new Clear communication normal’. Clear and frequent communication has been critical in 2020. The Executive Board and senior management held numerous Last but not least, we want to express our sincere gratitude to online meetings to closely monitor and discuss health and management and employees, who remained flexible, dedicated safety measures, COVID-19 developments, revenue, costs, and optimistic during this unexpected and challenging period.

Keeping a close eye on costs and cashflow, we did not compromise on our long-term strategy.

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The Supervisory Board provides oversight, As the COVID-19 crisis has been unfolding across global In retrospect, 2020 has been a turbulent year, and despite the evaluates progress and performance, maintains markets, the automotive sector was faced with yet another imposing COVID-19 challenges, the organisation has proven a sound and transparent system of checks and challenge as it was already confronted with a general market itself to be resilient, with inspiring and decisive leadership by the balances and advises the Executive Board when slowdown in 2018 and 2019. Despite COVID-19, innovation Executive Board and senior management. They gave clear accelerated in Autonomous, Connected, Electric and Shared direction with continued focus on the health and safety of our appropriate. To this end, the Supervisory Board driving (i.e. the ACES). The ACES offer long-term growth employees and their families, keeping them informed and weighs long-term value creation and the interests opportunities for the Automotive Group. Kendrion continued connected as needed. In parallel they focussed on the of the company and its stakeholders. to invest in the Lighthouse projects that were identified in continuity of the company by performing scenario analyses to 2019 and that include products that help advance the assess the potential financial impact of COVID-19 and taking This Report of the Supervisory Board sets out the way in which implementation of ACES vehicles. The industrial sector made a appropriate cost control measures without losing sight of the the Supervisory Board fulfilled its duties and responsibilities in good start to the year. However, the COVID-19 pandemic also company’s long-term ambitions. 2020. started to impact revenue of the Industrial business units as of May 2020. Whereas the COVID-19 impact on certain industrial segments has been quite significant – such as the machine Performance in 2020 building industry and aerospace – other segments developed positively, like the medical equipment and wind power segment. This year has been unlike any other where the world has been Kendrion’s pressure regulators and solenoid and proportional struck by COVID-19, impacting people’s lives and the global valves ensure precise and reliable gas dosing in ventilation and economy massively. At all times, priority has been given to the anaesthesia devices. In 2020 a request was received from the health and safety of Kendrion’s employees and their families. British government for the delivery of pressure regulators to the With the strict operating measures that have been NHS in the UK for use in ventilators to battle COVID-19. We implemented, production continued in a safe and responsible have also seen a fast-growing demand for brakes for wind manner. Our office staff was instructed to work from home as turbines, as investments in green energy accelerates across much as possible and immediate measures were taken to the world. facilitate remote working and participation in virtual meetings in a secure manner. The latter triggered the accelerated In Q1 2020, our China operations in Suzhou and Shanghai implementation of new communication tools by Kendrion’s suffered first from the COVID-19 pandemic. Management acted global IT function. In addition, contingency plans were updated rapidly. Health and safety measures were implemented that for as needed and based on the outcome of the scenario-analyses the most part could be taken over by our European and US performed, a range of measures has been implemented to facilities when COVID-19 reached Europe and US in March protect the company’s business continuity and preserve its 2020. With China’s recovery from COVID-19, management financial position and cashflow. recommenced the pursuit of the ambitious China growth strategy in line with previous expectations.

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Focus items 2020 The new global organisational structure of Industrial Brakes one Industrial Actuators and Controls business unit. The became effective as of April 2020. Upon completion of other Supervisory Board supervised the design and execution of the In coordination with the Executive Board, the Supervisory key integration areas in the course of 2020, the Executive roadmap aimed at the establishment of Industrial Actuators and Board previously determined certain focus items for the year Board reported the outcome of a comprehensive review that Controls by combining the activities of IMS and ICS, as well as 2020. The Supervisory Board placed special emphasis on the was carried out to assess the effectiveness of changes resulting the related integration risks. following predetermined subjects in 2020: from the integration based on certain key integration indicators. Key integration indicators for this review included: global As of Q1 2020, the prior organisations of IMS and ICS have Integration of INTORQ and Industrial Drive Systems (IDS) footprint, product portfolio, market access, market share, skill been combined and the management team of Industrial business unit of Kendrion into one Industrial Brakes set, cost synergies realised and capabilities. Relatedly, the Actuators and Controls has been established. The new business unit Supervisory Board monitored the review of the operating model management team includes a healthy mix of representatives of With the successful completion of the acquisition of INTORQ in and capabilities of INTORQ’s facility in India and the expected the former IMS and ICS. Specific attention has been given to January 2020, the Supervisory Board closely monitored the prospects going forward. the strengthening and streamlining of the commercial subsequent integration of INTORQ and Kendrion’s prior organisation, particularly the product and market strategy of the business unit IDS into a single business unit called Industrial As also supported by the robust performance of Industrial former IMS. In realising the business unit Industrial Actuators Brakes business. Brakes in 2020, the Supervisory Board believes that by having and Controls, management focussed increasingly and In January 2020, the Executive Board appointed a new brought together the capabilities of INTORQ and Kendrion’s continuously on cultural alignment and change management. experienced business unit manager to lead the integration and IDS into one new Industrial Brakes business unit, a leading According to the Supervisory Board, the merging of the prior the business unit Industrial Brakes. In addition, dedicated global industrial brake company has been created. It enhanced business units has been carefully prepared and consistently senior leadership was put in place to assess synergy targets global presence and broad industrial brake technology in a implemented with due attention for the prioritisation of synergy and prepare key decision options. number of growth segments that are part of Kendrion’s initiatives. Despite COVID-19, Industrial Actuators and Controls In discussing the integration, the Supervisory Board devoted strategic intent: industrial and collaborative robots across has been able to benefit from recovering markets which clearly attention to various topics and aspects of the integration, industries, brakes for wind turbines and internal logistics (e.g. contributed to its recovered performance in 2020. including: automated guided vehicles). Moreover, the addition of INTORQ ■ Maintaining momentum in ongoing businesses and enhanced the balance between Kendrion’s Automotive Expanding the organisation in China securing IDS and INTORQ customer relations; activities and its Industrial activities as each represent As COVID-19 impacted our Chinese operations predominantly ■ Retaining key leadership and talent, including the approximately 50% of Kendrion’s revenue base and growth in the first quarter of the year, COVID-19 also hampered the establishment of a new joint management team for potential. The enhanced balance equalises the dependency on continuation of the scheduled training modules for the Chinese Industrial Brakes; either of these segments. R&D team. Within the span of a year, advanced virtual training ■ Managing cultural integration and change management; programs were developed making efficient use of tools that ■ Designing future operating model; Combining Kendrion’s business units Industrial Magnetic enable remote collaboration. This all with a view to secure ■ Realising cost synergy potential in line with expectation and Systems (IMS) and Industrial Control Systems (ICS) into one continuous improvement of the capabilities and capacity of the integration objectives; Industrial Actuators and Controls business unit local organisation. ■ Designing combined IT landscape and infrastructure for the It was decided to combine Kendrion’s business units Industrial integrated operations. Magnetic Systems (IMS) and Industrial Control Systems (ICS) in

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When China recovered from COVID-19, at the end of the first Advancing the Automotive Group project pipeline and the development and implementation of strategic initiatives that quarter, our operations in Suzhou and Shanghai reverted to the redirection of R&D function contribute to the sustainable advancement of the project continued pursuit of the ambitious China growth strategy. The Supervisory Board closely monitored the development of pipeline. Imperative to the realisation of future revenue growth remains the Automotive project pipeline as key indicator for the the continued investment in capability and capacity of the local realisation of sustainable growth. Through various strategic Extraordinary year organisation. efforts an environment has been created that is supportive to Notwithstanding the previously determined focus items for the positive development of the project pipeline, including: 2020, the outbreak of the COVID-19 pandemic called for close Consistent with prior years and to manage the project pipeline ■ Implementation of certain fundamental improvements to the monitoring of the situation by the Supervisory Board. Various in a balanced manner, resource capacity planning and sales and marketing strategy; in-depth discussions took place between the Executive Board optimisation are continuously evaluated and advanced as ■ Increased focus on the transformation and development of and the Supervisory Board through online meetings during needed. a sharp product portfolio (e.g. valves and actuators, which the pandemic and the related risks were extensively clutches and smart products); discussed. During these meetings, the Executive Board Supportive to the China growth ambitions, the Executive Board ■ Consistent focus on ACES; provided adequate transparency by informing the Supervisory proposed the development of a new 28,000m2 production ■ Focus on smart products, global reach, re-use and Board about key COVID-19 related developments. facility on Suzhou’s renowned industrial park, the SIP. The balanced lifecycle approach. famous Suzhou industrial park is centrally located, easily In managing the crisis, the health and safety of employees and accessible and moreover is offering a professional infrastructure Improvements to the sales strategy concern the preservation of their families has been a constant priority. Safeguarding the within the close vicinity of technically advanced multi-national a tailored and targeted sales approach. Improvements to the continuity of Kendrion and its affiliated enterprise has also been corporations. Based on the detailed review carried out by marketing strategy address areas such as the redefinition of the a key priority. Various scenario analyses to estimate the management, addressing financial as well as non-financial user experience and the digital communication revolution with potential financial impact of COVID-19 were carried out by the considerations, such as attract and retain talent as well as customers increasingly expecting digital communication. Executive Board and existing contingency plans were adjusted enhance energy efficiency, the Supervisory Board approved the Creating focus and scale in growth markets is also an important as and when needed. Based on different scenarios, alternative development plan proposed by the Executive Board. The aspect relevant to the transformation of the product portfolio. strategic funding options were assessed and extensively approved development plan assumes that the new production The Automotive Lighthouse projects that were identified in discussed among the Executive Board and the Supervisory facility will be ready for use in the first half of 2022. 2019 further drive this transformation. With the joining of a new Board. Following these extensive discussions, the Supervisory R&D Director, the Supervisory Board is confident, that the R&D Board approved the commencement of talks with Kendrion’s Whilst the Supervisory Board has consistently supported the agenda will be refined, and the furtherance of the Automotive banking syndicate regarding a financial covenant relief without expansion and growth in China, it has also reiterated the Lighthouse projects will be accelerated. additional funding. The Supervisory Board is pleased that the importance of maintaining project performance and the delivery Executive Board reached agreement with the banking syndicate of high-quality products. Nevertheless, the Supervisory Board The Supervisory Board is pleased that over 2020 the to increase the leverage covenant for the quarters up to does believe that the steps taken to date have been conducive Automotive Group added approximately EUR 350 million to its December 2021. With this agreement, Kendrion will continue to to the anticipated realisation of the ambitious growth strategy. project pipeline. Nevertheless, the Supervisory Board expects be able to invest in its longer-term growth opportunities, should Given the importance of the China growth strategy, the the commercial organisation of the Automotive Group to further additional unforeseen circumstances triggered by COVID-19 successful execution of the project pipelinewill remain on the list progress and evolve at the organisational level, in addition to occur. of focus items for 2021, including the development of the new production facility.

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Moreover, the Executive Board together with senior Focus items 2021 In 2020, participants of Kendrion’s High Potential program, management vigorously and decisively dealt with the short-term were requested to conduct a diversity review structured along by implementing strict operating procedures to ensure the The Supervisory Board has defined the following attention the following themes: continuation of production in a safe and responsible manner points for 2021: ■ Analysis: company specific review into diversity at Kendrion; and by focussing on cost control to protect Kendrion’s financial ■ Maintaining up-to-date contingency plans in addressing ■ Public perception and image: gaining insight into Kendrion’s position and liquidity. Cost control measures included the use COVID-19 and securing the continuity of the company and reputation to attract and retain a diverse group of of short-time work arrangements in several of Kendrion’s its affiliated enterprise; employees; European production facilities and a voluntary salary reduction ■ Continued investment in China to support the realisation of ■ Attractive employer: employer branding, including work of 15% by senior management, including the Supervisory the growth strategy, including the development of the new environment and conditions; Board. In addition, all uncommitted and non-urgent capital production facility in Suzhou; ■ Recruitment and retention: initiatives aimed at the expenditure was suspended, however, without losing sight of ■ The contemplated closure of the production facility in recruitment and retention of a diverse group of employees. the long-term perspective and any remaining capital Eibiswald, Austria, as part of the optimisation of the investments were accordingly prioritised. European manufacturing footprint of the Automotive Group; The outcome of the diversity review has also been presented to ■ Advancing the IT strategy and execution thereof, as the Supervisory Board. The Supervisory Board is of the opinion digitalisation in the manufacturing space will be crucial to that in an increasingly diverse and multicultural society, long-term value creation. advancing diversity within organisations like Kendrion becomes ever more important. Although the Executive Board and senior management progress diversity across the organisation by Meetings and attendance providing training and by organising Kendrion-wide diversity initiatives, the Supervisory Board expects the Executive Board The Supervisory Board held 9 meetings in 2020, eight of which to increase and strengthen its diversity efforts – especially on were regular scheduled meetings. As of February 2020, the management level – and to develop a renewed global diversity subject matter ‘COVID-19 and related developments’ was program with concrete measures aimed at the structural added as a standing agenda item to the agenda of Supervisory improvement of diversity within Kendrion. The renewed global Board meetings and discussed in detail among the Executive diversity program should take account of the outcome of the Board and the Supervisory Board. One extraordinary meeting review carried out by the participants of the High Potential was convened to discuss the final proposal regarding the program. strategic funding options. In addition to the regular and extraordinary scheduled meetings, the Supervisory Board and In 2020, again special consideration was given to Kendrion’s the Executive Board maintained regular contacts to keep IT strategic plan. Based on the outcome of the IT baseline abreast of relevant COVID-19 developments. Except for the review conducted in 2019, Kendrion developed an IT strategic February 2020 meeting, all Supervisory Board meetings in 2020 framework 2020-2025. The IT strategic framework 2020-2025 were held virtual and the Supervisory Board members and comprise several pillars of which simplification, data insight and other meeting participants were able to participate in the digitalisation are key to driving value add. Within the pillars meetings through video conference. simplification and data insight, the centralisation of IT systems

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and the centralisation of data are important objectives. The focused on direct interaction with the Management Team and the Supervisory Board was performed with a structured Audit Committee of the Supervisory Board closely monitored other senior management. This included presentations in the questionnaire that was filled in by the members of the progress on the development and execution of the new areas of responsibility and one-on-one meetings between the Supervisory Board, the Executive Board and the General IT strategic framework. Chairman of the Supervisory Board and members of the Counsel. The questionnaire addressed items such as: Management Team. composition and expertise of the Supervisory Board, dynamics The Supervisory Board also monitored progress on Kendrion’s within and functioning of the Supervisory Board and its global sustainability program against the 2019-2023 target The agenda for the Supervisory Board meetings covered the committees, functioning of individual members of the framework. The Supervisory Board received updates about the 2020 focus items described on page 78-80 and other recurring Supervisory Board, dynamics between the Supervisory Board actions taken under the 5-year roadmap aimed at the topics that are annually addressed, such as: operational and and the Executive Board and tasks and responsibilities of the realisation of a 15% relative reduction of energy consumption financial performance, progress against the strategic plan and Supervisory Board. The assessment was discussed during a and CO2 emission by the end of 2023 and supports the the principal risks associated with the operation, progress and Supervisory Board-only meeting facilitated by the Chairman. continued review of the effectiveness of these measures. the achievement of milestones of special projects, risk The Supervisory Board intends to perform the annual self- Progress has also been made in the area of waste management and internal control system, governance and assessment with the support of an external consultant once management and the Supervisory Board encourages the compliance and the online General Meeting of Shareholders. every three years. further development of concrete waste objectives. The COVID- Another topic that was given attention during 2020 included the 19 hygiene measures have had a positive effect on Kendrion’s status of the ongoing German tax audits. The outcome of the evaluation confirmed a good and overall illness rate, as it showed a steady decline in 2020. The constructive relationship between the Supervisory Board and Supervisory Board endorses the continued development of a Due to COVID-19, this year’s annual two-day strategy meeting the Executive Board. The Supervisory Board members take responsible product portfolio and the clear categorisation of could not take place at one of Kendrion’s production facilities. appropriate responsibility and are valued for their dedication, products along the Sustainable Development Goals (SDGs). Therefore, the two-day strategy sessions to discuss strategic expertise and ongoing commitment. The Supervisory Board The Supervisory Board is confident that the materiality analysis options and the strategic plan 2021-2025 were held virtually. members are aware of the different roles and responsibilities carried out in 2020 will contribute to the continuous between the Supervisory Board and the Executive Board and advancement of Kendrion’s global sustainability program. The external auditor attended the meeting of the Supervisory are keen to secure them. A special attention point is the Particularly the development of ambitious objectives that will Board in February 2020 during which the full-year figures for succession planning and the well-timed replacement of drive Kendrion’s performance. 2019 and the auditor’s report were discussed. members of the Supervisory Board and training and development to keep abreast of relevant regulatory and other All meetings of the Supervisory Board were attended by the developments. Executive Board, and at times by members of the Management Evaluation Team. In addition, meetings were held without the Executive In Supervisory Board-only meeting(s), the members assess the Board and without the Management Team. The attendance The Supervisory Board continued to invest in its own training functioning of the Executive Board and the individual members. percentage for regular scheduled Supervisory Board meetings during the year and received updates on governance and With the CEO and CFO the Supervisory Board discussed in 2020 was 100% (2019: 98%). compliance. Once a year the Supervisory Board carries out a performance and last year’s KPIs, strategic and operational self-assessment, including an assessment of the Supervisory spearheads for 2021 and personal development. In addition, the Chairman of the Supervisory Board and the Board committees and the individual Supervisory Board Chair of the Audit Committee held monthly meetings with the members. In 2018, the evaluation was carried out by an CEO and CFO, respectively. The Supervisory Board also independent external consultant. In 2020 the assessment for

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Composition decision-making by the Supervisory Board. The committees of developments. Special consideration was given to the the Supervisory Board have their own regulations, which safeguarding of the continuity of the company and its affiliated The Supervisory Board consists of four members: Henk ten include a detailed description of the committee’s tasks and enterprise. Various scenario analyses to estimate the potential Hove (Chairman), Jabine van der Meijs (Chair of the Audit responsibilities. financial impact of COVID-19 were carried out and presented to Committee), Marion Mestrom (Chair of the HR Committee) and and discussed with the Audit Committee, and existing Thomas Wünsche (until resignation in April 2020) and Erwin Doll Audit Committee contingency plans were adjusted as and when needed. Based (as of appointment in June 2020). The Audit Committee uses its knowledge and expertise to on different scenarios, alternative strategic funding options were advise on and prepare Supervisory Board’s decision-making, prepared and extensively discussed with the Audit Committee. The Supervisory Board operates independently of the Executive particularly concerning matters relating to Kendrion’s financing, Board, the Management Team, any other participating interests financial statements, the integrity and quality of financial The Audit Committee monitored and reviewed regular topics and each other. Each of the Supervisory Board members has reporting, the effectiveness of risk management and internal such as: the quarterly financial results, the half-year and full- the necessary expertise, experience and background to carry controls and the approach and operation of the internal audit year financial statements, the auditor’s report, maintenance and out his or her tasks and responsibilities. All members of the function and internal audit program. effectiveness of risk management framework and internal Supervisory Board are independent within the meaning of the control system, the internal audit plan and key findings of Dutch Corporate Governance Code. The members of the The Audit Committee consists of Jabine van der Meijs (Chair) internal audits performed, the external audit plan, transfer Supervisory Board satisfy the statutory requirements and Thomas Wünsche (until resignation in April 2020) and pricing, tax policy, treasury policy, the group insurance program, concerning the number of supervisory or non-executive Erwin Doll (as of appointment in June 2020). the speak-up procedure, legal and compliance, the annual functions that they can have with large enterprises. The evaluation of external auditor and the annual evaluation of the composition of the Supervisory Board is in line with the The Audit Committee held four meetings in 2020. Except for approach and operation of the internal audit function and the Supervisory Board profile as drawn up by the Supervisory the February 2020 meeting, all Audit Committee meetings in internal audit program. Driven by the COVID-19 restrictions, Board and the diversity objectives described in the Diversity 2020 were held virtual and the Audit Committee members and alternative ways to perform internal audits were discussed with Policy for the Supervisory Board. Both the Supervisory Board other meeting participants were able to participate in the the Audit Committee and subsequently implemented with a profile and the Diversity Policy can be found on the corporate meetings through video conference. Attendance during 2020 view to limit delays in the performance of the internal audit website at www.kendrion.com. was 100% (2019: 100%). The CFO, the Internal Audit and Risk program as much as possible. Manager and the Group Controller attended all meetings. The The composition of the Supervisory Board reflects a balanced external auditor Deloitte Accountants B.V. attended the Regular updates were provided on the maintenance and participation of two men and two women. meetings of the Audit Committee during which the full-year effectiveness of the risk management framework and internal financial statements for 2019, the half-year financial statements control system relating to strategic, financial, operational, tax for 2020 and the management letter were discussed. The Audit control and compliance matters. Kendrion monitors its internal Committees of the Supervisory Board Committee met with the external auditor without the CFO. controls through a systematic approach, which is supported by a solid risk management framework and the internal audit In order to perform in an efficient manner, the Supervisory The COVID-19 pandemic also called for close monitoring by program. Board has established two committees: the Audit Committee the Audit Committee and it deliberated extensively about the and the HR Committee. The primary task of the committees of pandemic and the related risks. During these meetings, the Following the earlier recommendations of the Audit Committee the Supervisory Board is to advise and facilitate the Supervisory CFO and Group Controller provided adequate transparency by in May 2019, Kendrion has established an independent internal Board with respect to its responsibilities and to prepare informing the Audit Committee about key COVID-19 related audit function within the meaning of the Dutch Corporate

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Governance Code. Since October 2019, the internal audit HR Committee In view of the upcoming expiry of the second term of function is headed by the Internal Audit and Risk Manager. The HR Committee consists of Marion Mestrom (Chair) and Henk ten Hove in 2021, the Chair of the HR Committee timely Henk ten Hove. The HR Committee held two meetings, with an commenced the search to find a new Chairman for the The Audit Committee also discussed tax and treasury matters, attendance rate of 100% (2019: 100%), one of which was held Supervisory Board. Taking account of the Supervisory Board including Kendrion’s policies relating to transfer pricing. With virtual and the HR Committee members and other meeting profile and the diversity objectives described in the Diversity respect to tax, the Audit Committee also monitored and participants were able to participate in this meeting through Policy for the Supervisory Board, the HR Committee discussed the status of pending tax audits, including the status video conference. The CEO attended both meetings. recommended the nomination of Frits van Hout, who will step of the ongoing German tax audits. In addition to the scheduled meetings, the HR Committee had down in April 2021 from his board position at ASML, the a number of informal meetings with and without the members innovative global leader in the semiconductor industry, where In addition to the above, the Audit Committee discussed the of the Executive Board being present. he serves as Executive Vice President since 2009, most development of the new IT strategic framework 2020-2025 and recently as Chief Strategy Officer. The Supervisory Board monitored progress on the execution of the new IT strategic Succession planning unanimously resolved to nominate Frits van Hout for framework. Following the announcement of Thomas Wünsche that he appointment as Chairman to Kendrion’s Supervisory Board would not be available for a second term as member of the for a four-year term. The appointment will be submitted to the Deloitte Accountants B.V. was reappointed as external auditor Supervisory Board, the HR Committee advised the Supervisory shareholders for approval at the upcoming Annual General by the General Meeting of Shareholders on 9 April 2018 for a Board about the selection and nomination of a new Supervisory Meeting of Shareholders on 12 April 2021. term of three years up to and including the financial year 2020. Board member. Taking account of the Supervisory Board profile The Audit Committee monitored both the external auditor’s and the diversity objectives described in the Diversity Policy for Performance management performance and the effectiveness of the external audit process the Supervisory Board, the HR Committee recommended the The HR Committee considered and prepared the performance and its independence. The Audit Committee approved the nomination of Erwin Doll and the Supervisory Board reviews of the members of the Executive Board for discussion 2020 external audit plan, including scope and materiality unanimously resolved to nominate Erwin Doll for appointment. in the Supervisory Board. The outcome of the performance applied. Reviews and discussions were held on the findings of On 24 June 2020, the General Meeting of Shareholders reviews process was discussed in a Supervisory Board-only the external auditor in its management letter and the actions resolved to appoint Erwin Doll for a four-year term ending on meeting. taken to address the recommendations and observations made the date of the Annual General Meeting of Shareholders to be by the external auditor. Also based on the outcome of the held in 2024. Variable remuneration assessment of Deloitte’s performance as well as the advice of The HR Committee agreed the financial and non-financial the Executive Board, the Audit Committee advised the Marion Mestrom was first appointed to the Supervisory Board performance criteria for the short-term and the long-term Supervisory Board regarding the reappointment of Deloitte as on 11 April 2016 for a four-year term ending in April 2020. The variable remuneration of the Executive Board and reviewed external auditor. The Supervisory Board followed the advice of Chairman of the Supervisory Board acting in his capacity as progress on these performance criteria. the Audit Committee and will propose Deloitte’s reappointment member of the HR Committee advised the Supervisory Board at the upcoming Annual General Meeting of Shareholders on regarding the reappointment of Marion Mestrom. On 24 June The Executive Board provided the HR Committee with 12 April 2021 for a period of four years after 2020 (i.e. for the 2020, the General Meeting of Shareholders resolved to information on the main components of the remuneration financial years 2021 through 2024). reappoint Marion Mestrom for a four-year term ending on the structure that applies to members of the Management Team date of the annual General Meeting of Shareholders to be held who are not members of the Executive Board. The variable in 2024. remuneration of the Management Team is aligned to the structure of the Executive Board variable remuneration.

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Financial statements and auditor’s opinion Concluding remarks

The 2020 financial statements included in this Annual 2020 has been and hopefully will remain an unprecedented Integrated Report have been audited and Deloitte Accountants year. Employees and management have shown a high level of B.V. has issued an unqualified opinion. They were discussed flexibility and capability of fast adaptation. We are grateful for with the Supervisory Board, the Audit Committee in the their contributions. The Supervisory Board is also pleased that presence of the external auditor, and the Executive Board. the dialogue with our customers about new business continued The Supervisory Board is of the opinion that the 2020 financial and has been successful. Last but not least we want to thank statements meet all requirements for transparency and our shareholders for their continuous trust and support. correctness. Therefore, the Supervisory Board recommends that the General Meeting of Shareholders to be held on Supervisory Board 12 April 2021 adopt the 2020 financial statements and the appropriation of net income. Henk ten Hove, Chairman Jabine van der Meijs This Annual Integrated Report furthermore contains a limited Marion Mestrom assurance report of Deloitte Accountants B.V. on selected Erwin Doll sustainability performance targets. 18 February 2021

Profit appropriation

Kendrion realised net profit of EUR 4.3 million in 2020. Normalised net profit before amortisation of intangibles arising from acquisitions amounted to EUR 11.7 million.

The Supervisory Board approved the proposal of the Executive Board to pay out 50% of normalised net profit as dividend.

The members of the Supervisory Board have signed the 2020 financial statements to comply with their statutory obligation pursuant to article 2:101, paragraph 2, of the Dutch Civil Code.

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Introduction organisation, including continued investment in the expansion Progress has also been made with Kendrion’s global This Remuneration Report describes the application of the of product lines, further optimisation of production processes sustainability program. Kendrion’s drive to use energy efficiently

Remuneration Policy for the Executive Board and the actual and certifying product quality and reliability of the supply chain. and to reduce CO2 emission is reflected in a range of activities performance in 2020 against the predefined performance Supportive to the China growth ambitions, it has been decided and investments. In 2020, Kendrion reviewed the effectiveness criteria. In addition, the Remuneration report provides an to develop a new production facility on Suzhou’s renowned of measures implemented under the five-year roadmap that overview of the remuneration of the Supervisory Board in 2020. industrial park, SIP. The famous Suzhou industrial park is was designed in 2019 and which includes measures for the centrally located, easily accessible and moreover is offering a production plants aimed at the realisation of a 15% relative

Performance in 2020 professional infrastructure within the close vicinity of technically reduction of energy consumption and CO2 emission by the end Looking at the performance of the business units, the advanced multi-national corporations. of 2023. The COVID-19 hygiene measures have had a positive Automotive Group had a tough year. After a good start the side-effect on Kendrion’s overall illness rate as it showed a automotive market dropped significantly in Q2 2020. In Q3 and In managing the crisis, the health and safety of employees and consistent and significant decline in 2020 compared to previous Q4 2020, the global passenger car market has recovered, but their families has been a constant priority. Safeguarding the years. Waste management practices have been advanced, and is still around 16% lower than in 2019, which in itself was a continuity of Kendrion and its affiliated enterprise has also been the outcome of the most recent waste data analysis has shown weak year for the automotive industry. Despite COVID-19, a key priority. Various scenario analyses to estimate the promising results. In response to the reasonable expectations innovation accelerated in Autonomous, Connected, Electric and potential financial impact of COVID-19 were carried out and of certain key stakeholders, Kendrion increased its focus and Shared driving (i.e. the ACES). The ACES offer long-term existing contingency plans were adjusted as and when needed. transparency about sustainable product use and additional growth opportunities for the Automotive Group and Kendrion Based on different scenarios, alternative strategic funding categorisation of Kendrion’s products along the most applicable continued to invest in the Lighthouse projects that were options were calculated. In August 2020 Kendrion announced SDGs. identified in 2019 and that include products that help advance that it reached agreement with its banking syndicate to increase the implementation and functionality of ACES vehicles. During the leverage covenant up to 31 December 2021. With this In addition to the progress reported above, the successful 2020, the Automotive Group added approximately EUR 350 agreement, Kendrion safeguards its ability to continue to invest integration of INTORQ, the merger of Industrial Magnetic million to its project pipeline. The industrial sector made a good in its longer-term growth opportunities. Systems (IMS) and Industrial Control Systems (ICS) into one start to the year. However, the COVID-19 pandemic also business unit Industrial Actuators and Controls, the started to impact revenue of the Industrial business units as of The short-term impact of COVID-19 has been well managed advancement of the IT strategic framework and the May 2020. Whereas the COVID-19 impact on certain industrial and strict operating procedures have been implemented to comprehensive plans for the optimisation of the European segments has been quite significant – such as the machine secure the continuation of production in a safe and responsible manufacturing footprint of the Automotive Group, collectively building industry and aerospace – other segments developed manner. By focussing on cost control Kendrion protected its form a solid foundation for future growth. The Report of the positively, like the medical equipment and wind power segment. financial position and liquidity. Cost control measures included Supervisory Board that can be found on pages 77-84 of this the use of short-time work arrangements in several of Annual Integrated Report describes the progress made and key In Q1 2020, our China operations in Suzhou and Shanghai Kendrion’s European production facilities and a voluntary salary points of attention relevant to the various areas described suffered first from the COVID-19 pandemic. When China reduction of 15% by senior management, including the above. recovered from COVID-19 at the end of the first quarter, Supervisory Board. In addition, all uncommitted and non-urgent Kendrion’s operations in Suzhou and Shanghai recommenced capital expenditure was suspended, however, without losing the pursuit of the ambitious China growth strategy. Imperative sight of the long-term perspective and any remaining capital to the realisation of future revenue growth remains the investments were accordingly prioritised. continued investment in capability and capacity of the local

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Remuneration Policy Executive Board Remuneration in line with median level relative Temporary deviations to reference group The Remuneration Policy for the Executive Board has been In exceptional circumstances, the Supervisory Board can developed by the Supervisory Board and adopted by the The Remuneration Policy serves to recruit and retain diverse, decide to temporarily deviate from the Remuneration Policy for General Meeting of Shareholders in June 2020. Kendrion’s qualified and experienced executives in order to deliver members of the Executive Board. Exceptional circumstances previous Remuneration Policy was adopted by the General Kendrion’s long-term value creation strategy. In addition, the mean circumstances in which a deviation is considered Meeting of Shareholders in April 2018. For this purpose, the Remuneration Policy aims to further enhance the link between necessary to serve long-term interests and sustainability of HR Committee of the Supervisory Board informed itself and pay and performance and align the interests of the members of Kendrion or to otherwise ensure its viability. Depending on the took notice of developments and market practices regarding the Executive Board with the shareholders’ interests – and exceptional circumstances, the Supervisory Board can resolve executive remuneration. Based on this extensive review and other stakeholders’ interests – and focus on the sustainable to deviate from any or all of the four remuneration components prework performed by the HR Committee, the Supervisory delivery of high performance over the long-term by stimulating included in the Remuneration Policy for the members of the Board submitted and presented a remuneration policy for share ownership whilst adhering to the applicable standards of Executive Board. adoption at the General Meeting of Shareholders in April 2018. good corporate governance. In order to align the April 2018 Remuneration Policy to the When considering a temporary deviation from the Dutch Act implementing the EU Shareholders Rights Directive, Taking account of Kendrion’s size (in terms of revenues, Remuneration Policy, the Supervisory Board shall take into an updated version of the April 2018 Remuneration Policy has average market capitalisation, total assets, and number of FTE), account Kendrion’s long-term value creation strategy, ongoing been submitted and presented for adoption by the General its industrial market position, geographical scope and labour business and operational requirements as well as the financial Meeting of Shareholders in June 2020. The updated version of market competition, the companies included in the AScX Index situation of Kendrion. In addition, the deviation considered the Remuneration Policy does not comprise a value change to on Euronext Amsterdam are defined as reference group. should be assessed in light of the principles of reasonableness the remuneration packages of the members of the Executive Financial services, real estate and movies and entertainment and fairness. Board and the General Meeting of Shareholders adopted this companies are excluded from the reference group. Within the update version of the Remuneration Policy in June 2020. defined reference group, Kendrion is positioned around the Upon having resolved a temporary deviation from the median in terms of the average of the abovementioned Remuneration Policy, the Supervisory Board will (i) cancel and The Remuneration Policy is evaluated at least once every parameters revenues, average market capitalisation, total withdraw all deviations from the Remuneration Policy prior to four years by the Supervisory Board. The HR Committee will assets and number of FTE. The remuneration structure of the the first annual General Meeting of Shareholders following the continue to keep the Supervisory Board informed about Executive Board is set at the median level relative to the effective date of the deviation; or (ii) propose the necessary relevant market and legislative developments in order to reference group. amendments to the Remuneration Policy for adoption during support the periodic evaluation of the Remuneration Policy and the first annual General Meeting of Shareholders following the related decision-making. For more information about Kendrion’s The Remuneration Policy does not contain variable incentives effective date of the deviation. Remuneration Policy, please visit the corporate website at that may be detrimental to the responsibilities of the Executive https://kendrion.com. Board in defining and achieving Kendrion’s long-term value Deviations from the Remuneration Policy will be reported in creation strategy. Kendrion’s remuneration policy.

The Supervisory Board did not decide upon a temporary deviation from the Remuneration Policy for the members of the Executive Board in 2020.

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Remuneration components In addition to the above, any increase of the annual fixed base been applied to the base salary levels of the members of the salary up to the median level relative to the abovementioned Executive Board. Also due to the recovering revenue levels and The Remuneration Policy for members of the Executive Board reference group, can be decided upon by the Supervisory positive profitability as from the end of Q2 2020, the temporary consists of four components: a fixed base salary, a short-term Board and will not be regarded as an amendment to the salary reduction was lowered from 15% to 10% in August variable remuneration, a long-term variable remuneration and Remuneration Policy. 2020, and as of September through the remainder of 2020, no other benefits such as a pension scheme and a car allowance salary reduction applied. In 2020, the following annual base or lease budget. In 2020, the annual fixed base salary of CFO Jeroen Hemmen salary levels applied to the Executive Board: remained below the relevant market median. As part of the The sum of the fixed base salary, the short-term variable annual performance review in January 2021, the Supervisory 2020 actual remuneration and the long-term variable remuneration for Board will – by reference to the recommendations of the HR gross base salary members of the Executive Board are considered appropriate in Committee – consider whether an increase to the CFO’s 2021 2020 annual (incl. temp. salary relation to: (i) the identity, the purpose and values of Kendrion, annual fixed base salary up to the median level relative to the gross base salary reduction) (ii) the pay-ratios within Kendrion, (iii) the international context in abovementioned reference group is appropriate and justified. CEO (J.A.J. van Beurden) EUR 550,000 EUR 517,916.67 which Kendrion operates and (iv) views of relevant stakeholder CFO (J.H. Hemmen) EUR 270,250 EUR 254,485.41 groups. Triggered by the COVID-19 pandemic, Kendrion has taken a range of measures to reduce costs and to protect its financial The table below provides an overview of the development of The variable remuneration components are subject to a position and liquidity. These measures included a temporary the annual gross base salary levels of the members of the maximum value determined in advance in accordance with the salary reduction for the Executive Board. During the months Executive Board during previous financial years. Remuneration Policy. The Supervisory Board will carry out April through July 2020 inclusive, a salary reduction of 15% has scenario analyses to assess that the pay-out level of variable remuneration components appropriately reflect performance. 2020 annual 2019 annual 2018 annual 2017 annual 2016 annual gross base salary gross base salary gross base salary gross base salary gross base salary Base salary CEO (J.A.J. van Beurden) EUR 550,000 EUR 504,6451 EUR 490,900 EUR 474,300 EUR 465,000 EUR 550,0002 Members of the Executive Board receive a base salary, the Actual EUR 517,916.67 EUR 508,424.58 amount of which is set at the median level relative to the (actual) (actual)3 abovementioned reference group*. The fixed base salary levels CFO (J.H. Hemmen) EUR 270,250 EUR 235,0004 can be adjusted to be decided upon by the Supervisory Board, Actual EUR 254,485.41 EUR 117,500 based on general market movement and inflation figures. (actual) (actual)

1 Effective until 1 December 2019. 2 Effective as of 1 December 2019 (i.e. the commencement date of * On April 2019, the General Meeting of Shareholders reappointed J.A.J. van Beurden as CEO and member of the Executive Board the CEO’s second term). for a four-year period commencing on 1 December 2019 and ending on 1 December 2023. The fixed annual gross base salary that 3 The sum of EUR 462,591.25 (i.e. 11/12th of EUR 504,645) and has become effective as of 1 December 2019 amounts to EUR 550,000, which amount is not subject to indexation during the EUR 45,833.33 (i.e. 1/12th of EUR 550,000). second four-year term. The reappointment resolution does not also encompass a change to the Executive Board Remuneration 4 Effective as of 1 July 2019 (i.e. the effective date of appointment Policy as adopted by the General Meeting of Shareholders most recently in June 2020. to the Executive Board).

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Short-term variable remuneration Performance criteria ■ The performance incentive zone (threshold, target and The performance criteria for the short-term variable maximum) for each financial performance criterion will be The short-term is payable in cash, the amount of which is remuneration are based on Kendrion’s strategic intent to determined in advance by the Supervisory Board. No pay- based on the achievement of predetermined, specific and continuously grow revenue and profitability in a sustainable way. out will be made for below threshold performance. In the measurable financial and non-financial driven performance The performance criteria for the short-term variable case of performance equal to the threshold performance of criteria. remuneration include financial and non-financial criteria. The the relevant performance criterion, the pay-out of the short- financial driven performance criteria determine 60% of the term incentive will be equal to 50% of the relevant target The overview below describes the key elements of the short- short-term variable remuneration and reflect the financial amount. A linear curve will be applied to calculate the pay- term variable remuneration as recorded in the Remuneration priorities of Kendrion. The remaining 40% of the short-term out between threshold performance and maximum Policy for the Executive Board. variable remuneration is determined by non-financially driven performance. performance criteria and reflect sustainability ambitions and CEO The short-term variable remuneration ranges from 0% other priorities directly linked to Kendrion’s strategic intent. Non-financial performance criteria to 60% of the annual fixed gross base salary of the ■ The non-financial performance criteria determine 40% of CEO, with 40% being the target amount Financial performance criteria the short-term variable remuneration. CFO The short-term variable remuneration ranges from 0% ■ The financial driven performance criteria determine 60% of ■ Each year the Supervisory Board selects a certain number to 52.5% of the annual fixed gross base salary of the the short-term variable remuneration. of non-financial performance criteria derived from the CFO, with 35% being the target amount ■ Each year the Supervisory Board selects at least three strategic and operational spearheads for the respective financial driven performance criteria from the list below with performance year, which will in any event include Please note that as part of the reappointment of Joep van a view to incentivise delivery of financial priorities that performance criteria in the area of sustainability Beurden as CEO for a second four-year term, the General support Kendrion’s strategic and operational spearheads. (i.e. environmental, social and/or governance criteria). Meeting of Shareholders resolved on 8 April 2019 that the ■ The Supervisory Board may allocate different weight ■ Achievement of each individual non-financial performance short-term variable remuneration of Joep van Beurden ranges percentages to the different financial performance criteria it criterion will be measured by applying a binary scoring from 0% to 90% of the annual fixed gross base salary of selects for a particular year, provided a minimum weight of model. The amount of the pay-out for the achievement of Joep van Beurden, with 60% being the target amount. The 10% shall apply to a financial performance criterion. non-financial performance criteria depends on the number reappointment resolution does not also encompass a change ■ Financial performance criteria* of non-financial performance criteria achieved. to the Executive Board Remuneration Policy (including the ■ Net profit ■ A predefined step curve will be applied to calculate the pay- information in the table above) as adopted by the General ■ Return on sales (ROS) out between the achievement of the minimum threshold Meeting of Shareholders in June 2020. ■ Average return on capital employed (ROIC) number of selected non-financial performance criteria and ■ Organic growth achievement of all selected non-financial performance ■ Free cash flow criteria. No pay-out will be made for below threshold ■ Revenue performance. ■ EBITA ■ EBITDA

* In each case excluding exceptional or one-off cost and revenue items and the amortisation of intangibles arising on acquisitions or similar corporate events.

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Investment non-financial performance criteria that are linked to the In 2020, the following short-term incentive target amounts Members of the Executive Board have to invest at least 20% of Supervisory Board’s 2020 focus items and Kendrion’s strategic applied to the members of the Executive Board: the net amount of the pay-out of the short-term remuneration plan and operational spearheads, including the key growth earned until the required ownership level has been reached as areas identified therein. All performance criteria have been set 2020 short-term incentive target amount prescribed under Kendrion’s ‘Share ownership guideline’ of the well before the COVID-19 pandemic started and have CEO (J.A.J. van Beurden) EUR 330,000 (i.e. 60% of the annual Remuneration Policy. subsequently not been adjusted or changed. Although no gross base salary of EUR 550,000) distinction is made between the CEO and the CFO for the EUR 94,588 (i.e. 35% of the annual 2020 short-term variable remuneration financial performance criteria, within the non-financial CFO (J.H. Hemmen) gross base salary of EUR 270,250) Within the framework of the Executive Board Remuneration performance criteria the Supervisory Board decided to Policy, the Supervisory Board takes an informed decision distinguish between the CEO and CFO to ensure appropriate For the performance year 2020, the short-term incentive relevant to the variable remuneration of the members of the alignment with individual responsibilities, without compromising performance criteria are allocated as follows: Executive Board. For the determination of the financial and the collective responsibility of the Executive Board. non-financial performance criteria of the 2020 short-term incentive, the Supervisory Board considered – amongst others The recommendations of the HR Committee regarding the Short-term remuneration as percentage – the 2020 focus items as previously defined by the Supervisory selection of financial performance criteria and non-financial of annual gross base salary in 2020 Board upon expiry of the financial year 2019; the volatile performance criteria for the 2020 short-term incentive were economic climate and trading environment especially for the made prior to the outbreak of the COVID-19 pandemic. The Performance automotive industry which has been confronted with a general Supervisory Board could not have foreseen the COVID-19 crisis criterion Weight Minimum At target Maximum market slowdown in 2018 and 2019; and the importance of and the impact thereof on Kendrion and the global economy. Financial performance criteria (60%) long-term value creation through continued investments in key The actual performance against the performance criteria for the ROIC 15% 0 CEO 9% 13.5% growth areas that are identified in the strategic as approved by 2020 short-term incentive has been negatively influenced by CFO 5.25% 7.88% the Supervisory Board. The 2020 focus items of the the extraordinary circumstances caused by COVID-19 requiring ROS 15% 0 CEO 9% 13.5% Supervisory Board included the integration of INTORQ and the Executive Board to shift priorities. Focus on the health and CFO 5.25% 7.88% Industrial Drive Systems (IDS), the merger of Kendrion’s safety of employees and their families, strict cost control EBITDA 10% 0 CEO 6% 9% business units Industrial Magnetic Systems (IMS) and Industrial measures to preserve the financial position and liquidity of CFO 3.5% 5.25% Control Systems (ICS) into one business unit Industrial Kendrion, and continued investment in the company’s long- Free cash flow 20% 0 CEO 12% 18% Actuators and Controls, expansion of the organisation in China term ambitions took centre stage. As substantiated on pages CFO 7% 10.5% and the advancement of the Automotive Group project pipeline. 90 and 91 of this Remuneration Report, certain adjustments The Supervisory Board reported on the progress made and the reduced the total amount of the pay-out under the 2020 short- Non-financial performance criteria (40%) key points of attention relevant to the 2020 focus items in the term financial performance criteria by 15%. 0 CEO 24% 36% Report of the Supervisory Board that can be found on pages CFO 14% 21% 77-84 of this Annual Integrated Report. The temporary base salary reduction of 15% for the months TOTAL 100% 0 CEO 60% 90% April through July 2020 inclusive and 10% for the month of CFO 35% 52.5% For the 2020 short-term variable remuneration, the Supervisory August 2020, has been excluded for purposes of the 2020 Board followed the recommendations of the HR Committee short-term variable remuneration and has therefore been and selected four financial performance criteria, a non-financial disregarded for the calculation of the pay-out levels under the performance criterion in the area of sustainability and other 2020 short-term variable remuneration.

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2020 short-term financial performance criteria In 2020, the actual performance against the financial performance criteria was as follows:

2020 short-term incentive performance on financial performance criteria Pay-out as % of short-term Pay-out as % of annual gross base salary Financial performance criterion incentive target amount (excl. temp. salary reduction) Pay-out in EUR CEO (J.A.J. van Beurden) CFO (J.H. Hemmen) CEO (J.A.J. van Beurden) CFO (J.H. Hemmen) ROIC 102% 9.2% 5.4% EUR 50,600 EUR 14,594 ROS 114% 10.3% 6.0% EUR 56,650 EUR 16,215 EBITDA 62% 3.7% 2.2% EUR 20,350 EUR 5,945 Free cash flow 150% 18% 10.5% EUR 99,000 EUR 28,376 TOTAL 41.2% 24.1% EUR 226,600 EUR 65,130

For the assessment of the actual performance against the 2020 short-term non-financial performance criteria spearheads. Nevertheless, without prejudicing the collective financial performance criteria for the 2020 short-term incentive, The non-financial performance criteria for the 2020 short-term responsibility, the non-financial performance criteria also certain adjustments have been made in consideration of the incentive recognise the collective responsibility of the Executive distinguish individual responsibilities of the members of the extraordinary circumstances in 2020. These adjustments Board as they are closely aligned to the Supervisory Board’s Executive Board. The table below provides a summarised reduced the total amount of the pay-out under the 2020 short- 2020 focus items and Kendrion’s strategic and operational description of the non-financial performance criteria. term financial performance criteria by 15%. An impairment of capitalised development costs that has been normalised in the Summarised description 2020 non-financial performance criteria financial results is fully reflected in the calculation of the actual Executive Board Industrial Brakes Complete integration of INTORQ and Industrial Drive Systems (IDS) and establish EBIT(D)A and invested capital for purposes of determining the single business unit Industrial Brakes with minimal disruption in all global sites actual performance against the financial performance criteria. In CEO Industrial Actuators Complete merger of the business units Industrial Magnetic Systems (IMS) and addition, actual free cash flow and invested capital have been and Controls Industrial Control Systems (ICS) into one new business unit Industrial Actuators and adjusted for the amount by which previously budgeted cash Controls investments in fixed assets exceeded actual cash investments CEO China Expanding China organisation, with special focus on the local R&D organisation and to take account of the low capital expenditures in 2020 as it the further professionalisation of the local purchasing organisation was decided early in 2020 to suspend all uncommitted and Executive Board Sustainability Review effectiveness of 5-year energy and CO2 plan, advance diversity and non-urgent capital expenditure as part of the strict cost control progress waste management program that was implemented to reduce costs and protect CFO IT Development of new IT strategic framework/plan Kendrion’s financial position and liquidity in response to the CFO Risk management Advance Risk Management Framework and improve related processes COVID-19 crisis.

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Consistent with the Remuneration Policy, achievement of an Progress on the China expansion and Risk Management individual non-financial performance criterion will be measured Framework related non-financial performance criteria has been by applying a binary scoring model where a non-financial adversely impacted by the COVID-19 measures, including performance criterion can either be achieved or not achieved. circumstances such as the inability to travel and to convene The amount of the pay-out for the non-performance criteria face-to-face meetings. Without taking the position that no depends on the number of non-financial performance criteria progress was made relevant to these two non-financial achieved. The following step curve is applicable for the 2020 performance criteria, the Supervisory Board considers that the non-financial performance criteria. accomplishments that have been realised in 2020 despite the COVID-19 restrictions, do not justify ‘achievement’ within the Short-term binary scoring model where a non-financial criterion can either Number of non-financial incentive pay-out be achieved or not achieved (i.e. no linear scoring applies). performance criteria achieved % of target amount All 4 non-financial performance criteria achieved 150% The score on the non-financial performance criteria results in a 3 out of the 4 non-financial performance criteria achieved 100% pay-out of 100% of the short-term target amount representing: 2 out of the 4 non-financial performance criteria achieved 50% 24% of the CEO’s annual gross base salary of EUR 550,000 1 out of the 4 non-financial performance criteria achieved 0% and 14% of the CFO’s annual gross base salary of 0 out of the 4 non-financial performance criteria achieved 0% EUR 270,250. This resulted in a pay-out of EUR 132,000 for the CEO and EUR 37,835 for the CFO. Throughout the year, the Supervisory Board reviewed progress against the non-financial performance criteria and received 2020 pay-out short term incentive detailed updates about relevant developments and actions Overall performance resulted in the following pay-out of the taken. During the December 2020 Supervisory Board meeting, short-term incentive in 2020: the Executive Board provided a comprehensive overview of the progress made and achievements realised under the 2020 Total pay-out 2020 short-term incentive Pay-out as % of annual gross base salary strategic and operational spearheads. During the annual CEO (J.A.J. van Beurden) EUR 358,600 (gross) 65.2% of the gross annual base salary of EUR 550,000 performance reviews, specific attention was paid to the CFO (J.H. Hemmen) EUR 102,965 (gross) 38% of the gross annual base salary of EUR 270,250 individual performance and development of the members of the Executive Board against the non-financial performance criteria The table below provides an overview of the development of as well as key competencies such as (change) leadership and the pay-out under the applicable short-term incentive scheme organisational alignment and strategic business orientation. of the members of the Executive Board during previous Based on this comprehensive review of the performance of the financial years. members of the Executive Board, the Supervisory Board resolved that the CEO and the CFO each realised three out of the four non-financial performance criteria.

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Short-term incentive 2019 20181 20171 20161 CEO (J.A.J. van Beurden) EUR 191,282.90 (gross) EUR 117,816 (gross) EUR 170,748 (gross) based on 90% achievement of 2017 EUR 180,420 (gross) based on 97% achievement of 2016 performance criteria, representing 36% of gross annual performance criteria, representing 38.80% of the gross base salary (i.e. 36% of EUR 474,300), one-third paid in annual base salary (i.e. 38.80% of EUR 465,000), one-third cash and two-thirds awarded conditionally in shares. paid in cash and two-thirds awarded conditionally in shares. CFO (J.H. Hemmen) EUR 37,012.50 (gross) Not applicable – effective date of appointment to the Executive Board 1 July 2019.

1 The short-term incentive scheme for the years 2015, 2016 and 2017 is subject to the terms of the remuneration policy applicable immediately prior to the Executive Board Remuneration Policy that was adopted in April 2018. The 2018 short-term incentive is subject to the Executive Board Remuneration Policy adopted in April 2018.

Long-term variable remuneration

The long-term variable remuneration component incentivises The target value at grant date is as follows: Performance measure members of the Executive Board to focus on long-term In order to support Kendrion’s strategic intent, the vesting sustainable value for shareholders and other stakeholders; CEO 55% of the annual fixed gross base salary of the CEO percentage of the performance shares is conditional upon the it thereby serves to align the interests of the members of the as per the grant date achievement of performance measured as: Executive Board with the long-term interests of shareholders CFO 50% of the annual fixed gross base salary of the CFO and other stakeholder groups. as per the grant date Weight Performance measure 40% Relative total shareholder return (relative TSR) The members of the Executive Board annually receive The maximum opportunity for the long-term variable 40% Basic earnings per share (EPS) conditional performance shares. The conditional performance remuneration shall not exceed 150% of the target value. 20% Sustainability (i.e. environmental, social and/or shares will vest upon achievement of performance measured governance) over a period of three years following the grant date and are Please note that as part of the reappointment of Joep van restricted by a holding period for another two years after Beurden as CEO for a second four-year term, the General Relative TSR vesting. Meeting of Shareholders resolved on 8 April 2019 that the long- To determine achievement of this performance measure, the term variable remuneration of Joep van Beurden ranges from relative TSR is measured, which means share price The size of the award is defined as a percentage of the annual 0% to 90% of the annual fixed gross base salary of Joep van movements, including dividends and assuming dividends are fixed gross base salary of the relevant Executive Board member Beurden, with 60% being the target amount. The reinvested. The TSR performance of Kendrion is measured as per the grant date, where the actual grant is determined by reappointment resolution does not also encompass a change against the performance of twelve selected TSR peer this percentage and the average share price of the last quarter to the Executive Board Remuneration Policy (including the companies included in the table below. of the year immediately preceding the year of the grant date. information in the table above) as adopted by the General Meeting of Shareholders in June 2020.

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TSR Performance Peer Group commercially sensitive, EPS targets and the achieved # Company Activity HQ Listed performance are disclosed in the Annual Integrated Report after 1. Schneider Electric SE Energy management / automation FR Paris the relevant performance period. 2. Eaton Corporation plc Actuators, valves, brakes, hydraulics etc. for industrial and automotive IR New York 3. Sensata Technologies The following performance incentive zone will be used to define Holding NV Sensors and controls for automotive, commercial vehicles and industrial US New York the vesting for this part of the conditional grant of shares: 4. Aalberts Industries NV Industrial fragmented NL Amsterdam 5. Emerson Electric Co Industrial automation US New York < Threshold Target Maximum 6. Continental AG Automotive GE Frankfurt EPS 0 100% 150% 7. Schaeffler AG Automotive GE Frankfurt 8. TKH Group NV Industrial NL Amsterdam The vesting is linear between threshold performance and on 9. Wabco Holdings Inc Commercial vehicles part supplier BE New York target performance and between on-target performance and 10. Borg Warner Inc Automotive, commercial vehicles US New York maximum performance. 11. SKF AB Bearings, seals, mechanical transmission SW Stockholm 12. Phoenix Mecano AG Electronic components, actuators CH Zurich Sustainability The Supervisory Board will annually set a sustainability target 13.* Grammer AG Seating automotive commercial vehicles GE Frankfurt that is aligned with Kendrion’s sustainability ambitions as 14.* Regal Beloit Electric motors FR Paris reflected in the sustainability target framework. 15.* IMI Plc Fluid control UK London The following performance incentive zone will be used to define the vesting for this part of the conditional grant of shares: * Companies 13, 14 and 15 will be used as replacement companies in the case of delisting or other corporate events in respect of any of the selected TSR peer companies during the relevant performance period. < Threshold Target Maximum Sustainability 0 100% 150% The position of Kendrion in the TSR performance peer group, after three years, determines the score for this measure in accordance with the following performance incentive zone: The vesting is linear between threshold performance and on target performance and between on-target performance and Ranking 13 12 11 10 9 8 7 6 5 4 3 2 1 maximum performance. Vesting 0% 0% 0% 0% 0% 50% 75% 100% 100% 125% 150% 150% 150% The position of Kendrion in the ranking defines the vesting for this part of the conditional grant of shares.

EPS held as treasury shares. Earnings are adjusted for changes in EPS is disclosed in Kendrion’s consolidated financial accounting principles during the performance period. The statements and is calculated by dividing the profit or loss Supervisory Board sets the performance incentive zone attributable to shareholders of Kendrion by the weighted (threshold, target and maximum) annually by reference to the average number of shares outstanding during the relevant mid-term plan as approved by the Supervisory Board in the period, excluding ordinary shares purchased by Kendrion and year of the grant date. Given that these targets are considered

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2020 long-term variable remuneration Consistent with the applicable Remuneration Policy as adopted by the General Meeting Shareholders, the members of the Executive Board were granted conditional performance shares as described in the table below.

2020 annual Average share Conditional Expiry holding gross base salary Target amount price Q4 2019 performance shares Expiry vesting period period

CEO (J.A.J. van Beurden) EUR 550,000 EUR 330,000 (i.e. 60% of EUR 550,000) EUR 19.96 16,533 Expiry performance period 2020-2022 End of 2024

CFO (J.H. Hemmen) EUR 270,250 EUR 135,125 (i.e. 50% of EUR 270,250) EUR 19.96 6,769 Expiry performance period 2020-2022 End of 2024

The temporary base salary reduction of 15% for the months 2018 long-term variable remuneration April through July 2020 inclusive and 10% for the month of Pursuant to the 2018 long-term incentive scheme, August 2020, has been excluded for purposes of the 2020 6,960 conditional performance shares have been granted to long-term variable remuneration and has therefore been Joep van Beurden. The number of conditional performance disregarded for the calculation of the number of conditional shares has been calculated as follows: performance shares awarded under the 2020 long-term variable remuneration. 2018 annual Average share Conditional gross base salary Target amount price Q4 2017 performance shares In accordance with the applicable Remuneration Policy, the vesting percentage of the performance shares is conditional CEO (J.A.J. van Beurden) EUR 490,900 EUR 196,360 (i.e. 40% of EUR 490,900) EUR 38.79 6,960 upon the achievement of performance measured as relative TSR, EPS and a non-financial measure in the area of Consistent with the applicable Remuneration Policy, the vesting sustainability. The sustainability performance criterion for the percentage of the performance shares is conditional upon the 2020 long-term incentive is related to the achievement of the achievement (during the performance period 2018-2020) of energy efficiency and CO2 reduction targets as per the 2019- performance measured as: 2023 target framework and the implementation of the related measures. Weight Performance measure 40% Relative total shareholder return (relative TSR) 40% Basic earnings per share (EPS) 20% Sustainability (i.e. environmental, social and/or governance)

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A summary description of the performance measure in the area of sustainability for the performance period 2018-2020 has been included in the table below.

Summary description Sustainability performance measure – 2018-2020 Relative reduction energy consumption (10%) ■ On target performance (i.e. 100% vesting): 10% relative reduction of energy consumption compared to 2017 ■ Max. performance (i.e. 150% vesting): 12.5% relative reduction of energy consumption compared to 2017 ■ Min. threshold performance (i.e. 0% vesting): 7.5% relative reduction of energy consumption compared to 2017 Global company culture campaign focussed on the endorsement ■ On target performance (i.e. 100% vesting) of a performance driven culture and an innovative culture (10%) ■ Max. performance (i.e. 150% vesting) ■ Min. threshold performance (i.e. 0% vesting)

Vesting is linear between min. threshold performance and achieved maximum performance on the performance measure Kendrion as at 31 December 2020. Due to compliance with on-target performance and between on-target performance ‘global company culture campaign’ performance measure. the condition of the share-based incentive plan for employees, and max. performance. As a result, under the 2018 long-term incentive scheme a total Jeroen Hemmen will be awarded 135 (net) shares under the number of 1,044 shares have vested, which shares remain share-based incentive plan for employees. The shares awarded When measuring the relative TSR (i.e. share price movements, subject to a holding period until the end of 2022. In accordance are subject to a holding period of two years. including dividends assuming dividends are reinvested), the with the long-term incentive plan, Joep van Beurden will be position of Kendrion in the predefined TSR performance peer entitled to accrued dividend for each of the 1,044 vested group is twelve. The twelfth position results in below threshold shares. Accrued dividend will – in accordance with the long- performance. Based on the EPS performance incentive zones term incentive plan – be paid in cash. determined by the Supervisory Board by reference to the mid- term plan presented in 2018, the 2020 EPS falls below the Settlement prior employee bonus scheme threshold performance. Despite the investments contributing to Upon the appointment of Jeroen Hemmen as CFO and energy efficiencies and the implementation of measures member of the Executive Board effective as of 1 July 2019, reducing energy consumption, the relative reduction of energy his employment agreement with Kendrion N.V. was terminated consumption compared to 2017 falls below threshold pursuant to that certain settlement agreement. Pursuant to performance due to the reduced revenue levels. said settlement agreement, the termination of the employment agreement did not terminate or cancel any rights and With the successful roll-out of the global inter-company obligations accrued to Jeroen Hemmen pursuant to the campaign of The Kendrion Way and the additional initiatives share-based incentive plans for employees as maintained that have been developed and executed to further embed the by Kendrion N.V. With his 2017 annual bonus amount, behavioural values of The Kendrion Way into the organisation, Jeroen Hemmen purchased 135 shares. In accordance with the introduction of a Kendrion-wide employee satisfaction and the share-based incentive plan for employees, the prior culture survey global employee as well as the improvement of purchase of 135 shares will be matched (a matching ratio learning and development programs and tools, Kendrion of 1:1), provided Jeroen Hemmen is still employed by

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Development long-term incentive The table below provides an overview of the development of the conditional share awards under the long-term incentive scheme for the members of the Executive Board during previous financial years. The table also specifies the expiry of vesting periods and holding periods for conditional shares awarded.

2019 Expiry Expiry 2018 Expiry Expiry 2017 Expiry Expiry 2016 Expiry Expiry number vesting holding number vesting holding number vesting holding number vesting holding Long-term incentive of shares period period of shares period period of shares* period period of shares* period period CEO (J.A.J. van Beurden) 11,559 End of 2021 End of 2023 6,960 End of 2020 End of 2022 3,383 End of 2019 End of 2021 3,970 End of 2018 End of 2020 CFO (J.H. Hemmen) 2,409 End of 2021 End 2023 Not applicable – effective date of appointment to the Executive Board 1 July 2019

* The long-term incentive scheme for the years 2016 and 2017 is subject to the terms of the remuneration policy applicable immediately prior to the Executive Board Remuneration Policy that was adopted in April 2018.

Agreed upon procedures Deloitte Accountants B.V. Pension arrangement and other benefits No schemes have been agreed for the voluntary early Kendrion’s external auditor Deloitte Accountants B.V. performed retirement of members of the Executive Board. agreed-upon procedures regarding the calculation of the fixed Members of the Executive Board participate in the defined base salary and the variable remuneration of the Executive contribution pension scheme. Kendrion N.V. will pay: (i) the cost Kendrion maintains a car lease policy for members of the Board for the financial year ending 31 December 2020. The of contributions for participation in the defined contribution Executive Board. The lease budget (including fuel) is EUR 2,000 procedures have been separately agreed upon between scheme; (ii) the risk premium for the surviving dependents’ per month. Alternatively, members of the Executive Board are Kendrion and Deloitte Accountants B.V. and do not constitute pension (nabestaandenpensioen) and (iii) the cost of entitled to a monthly gross car allowance of EUR 2,000. an audit or review, or any other assurance engagement contributions for participation in the occupational disability conducted in accordance with the Dutch Standards on Auditing insurance (including WIA excedentverzekering) (collectively the In addition, Kendrion pays a monthly expense allowance to or other Dutch Standards and, consequently, no assurance has “Pension and Disability Insurance Contribution”). In addition, members of the Executive Board of up to EUR 450, to cover been provided by Deloitte Accountants B.V. This means that members of the Executive Board are entitled to an annual gross costs that are not suitable for individual reimbursement. Deloitte Accountants B.V. has not provided any assurance as to allowance to compensate for the loss of accrual of pension the fair presentation of the financial data and notes thereto as benefits as a result of the Dutch Wage Tax Act, provided that The amount of the car allowance and the expense allowance included in the fixed base salary and the variable remuneration the sum of the Pension and Disability Insurance Contribution are not included as a basis for calculation of the Pension and of the Executive Board. The agreed upon procedures have and such annual allowance shall annually not exceed an Disability Insurance Contribution, or any other (variable) been agreed with the intended users, being the Supervisory amount of EUR 75,000. This amount may be adjusted based remuneration or allowance, severance amount or benefit. Board. on market developments.

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Kendrion has arranged for a directors’ and officers’ liability Adjustment and claw back Pay ratio insurance. The costs for this insurance are for the account of Kendrion. The Supervisory Board is authorised to adjust the amount of The Executive Board to employee pay ratio is approximately 18 the short-term and long-term variable remuneration to an (2019: 14). This pay ratio is based on the average of the 2020 The Executive Board participates in the defined contribution appropriate level should payment thereof result in unreasonable Executive Board remuneration including pensions and other plan of Kendrion. The pension contribution in 2020 was or unequitable remuneration. In addition, a so-called claw-back expenses and the average wage costs per FTE in 2020 as EUR 52,585.96 (2019: EUR 31,238) for the CEO and provision applies pursuant to which the Supervisory Board has disclosed on page 57 of this Annual Integrated Report. EUR 34,046.17 (2019: EUR 12,664) for the CFO. In 2020 the authority to recover in whole or in part short-term and long- Kendrion provided the CFO with a car allowance in the term variable remuneration awarded to members of the monthly gross amount of EUR 2,000. Executive Board should it transpire that such variable Advisory vote remuneration report 2019 remuneration was unjustifiably awarded on the basis of incorrect information. The remuneration report 2019 has been discussed with the Share ownership guideline shareholders and put to the General Meeting of Shareholders for an advisory vote during the annual General Meeting of An objective of the Remuneration Policy is increase alignment Other key elements Shareholders held on 24 June 2020. The General Meeting of with the interests of shareholders by encouraging share Shareholders accordingly resolved to approve the remuneration ownership. Kendrion applies a share ownership guideline for Term and termination report 2019. The voting results of the General Meeting of members of the Executive Board of 100% of the annual fixed Management agreements with members of the Executive Shareholders held on 24 June 2020 can be found on the gross base salary for the CEO and 50% of the annual fixed Board are entered for a definite period of four years. The corporate website at https://kendrion.com. This 2020 gross base salary for the CFO. This shareholding has to be management agreement may be terminated with due Remuneration Report will be discussed with shareholders and gradually built up with performance shares earned under the observance of a notice period of six months. Kendrion is put to the General Meeting of Shareholders for an advisory vote long-term incentive, although it is permitted to sell shares to entitled to terminate the management agreement with during the upcoming annual General Meeting of Shareholders finance taxes due at the date of vesting of the performance immediate effect for cause (i.e. seriously culpable or negligent to be held on 12 April 2021. shares, and by purchasing shares with at least 20% of the net behaviour on the part of the Executive Board member). amount of the pay-out of the short-term incentive. Termination fee Remuneration Policy Supervisory Board In the event of termination of the management agreement on Policy in case of change of control Kendrion’s initiative, the termination fee for members of the Objectives Executive Board shall not exceed 100% of the annual fixed The remuneration policy of the Supervisory Board serves to Unvested performance shares awarded shall be deemed gross base salary (i.e. excluding short-term and long-term recruit and retain diverse, qualified and experienced members vested as per the date of the change of control assuming on incentive and other elements such as pension contributions). to supervise the manner in which the Executive Board target performance, subject to: (i) pro rating to reflect the The members of the Executive Board are not entitled to implements Kendrion’s long-term value creation strategy. proportion of the normal performance period that has elapsed a termination fee if the contract is terminated for cause Considering the nature of the supervisory responsibilities of the as per the date of the change of control, and (ii) the (i.e. seriously culpable or negligent behaviour on the part of Supervisory Board, the remuneration is not linked to Kendrion’s discretionary authority of the Supervisory Board to determine the Executive Board member) or if the contract is terminated performance, and therefore includes a fixed component only. In otherwise, should such deemed vesting of performance shares at the initiative of the Executive Board member. line with good corporate governance, Supervisory Board result in unreasonable or unequitable remuneration. members will not receive a share-based incentive.

Contents Profile Strategy Report of the Executive Board Outlook Report of the Supervisory Board Financial statements REMUNERATION REPORT Annual Integrated Report 2020 98

The remuneration of the Supervisory Board shall be as The aggregate amount of the remuneration of the described in the table below. The base fee and committee fee Supervisory Board members in 2020 EUR 170,470 (2019: levels in the table below are the same as determined by the EUR 172,000). The table below gives a breakdown of the General Meeting in April 2017. remuneration in 2020 per Supervisory Board member.

Base fee Supervisory Board member 2020 Chairman Supervisory Board EUR 45,000 H. ten Hove EUR 47,087 Member Supervisory Board EUR 35,000 M.J.G. Mestrom EUR 38,608 J.T.M. van der Meijs EUR 38,608 Committee fee E.M. Doll (appointed June 2020) EUR 27,666 Chair Audit Committee EUR 6,000 T.J. Wünsche (stepped down April 2020) EUR 18,500 Member Audit Committee EUR 5,000 Total EUR 170,470 Chair HR Committee EUR 6,000 Member HR Committee EUR 5,000

Expenses All reasonable and documented expenses incurred by the Supervisory Board members in the course of performing their duties are reimbursed.

Benefits and loans Members of the Supervisory Board are not eligible to participate in any benefits scheme offered by Kendrion to its employees, nor shall Kendrion provide loans.

Triggered by the COVID-19 pandemic, Kendrion has taken a range of measures to reduce costs and to protect its financial position and liquidity in 2020. These measures included a temporary salary reduction for the Supervisory Board. During the months April through July 2020 inclusive, a salary reduction of 15% has been applied to the base fee and committee levels of the members of the Supervisory Board. The temporary salary reduction was lowered from 15% to 10% in August 2020, and as of September through the remainder of 2020, no salary reduction applied.

Contents Profile Strategy Report of the Executive Board Outlook Report of the Supervisory Board Financial statements REMUNERATION REPORT Annual Integrated Report 2020 99

Executive Board remuneration comparative1 EUR Thousand 2020 2019 2018 2017 2016 2015 2014 J.A.J. van Beurden, CEO 984.2 853.52 768.42 737.8 645.4 38.8 J.H. Hemmen, CFO 450.4 189.4

Remuneration of former Executive Board members P. Veenema, CEO 734.6 668.7 F.J. Sonnemans, CFO 689.0 662.6 533.3 459.5 525.6

Pay ratio 18 14 12 13 13 14 13

Company performance Revenue (EUR million) 396.4 412.4 448.6 461.8 443.4 442.1 428.9 Normalised EBITA (EUR million)3 18.9 19.8 35.4 37.5 31.1 25.8 32.9 Normalised EBITA margin 4.8% 4.8% 7.9% 8.1% 7.0% 5.8% 7.7%

1 Based on settled short-term and long-term benefits, refer to note 29 of the financial statements for detailed disclosure. 2 Restated to include 2016 long-term incentive. 3 2019 restated for restrospective correction of inventory. The effect of the restatement can be found on pages 107 and 108 of the financial statements.

Supervisory Board remuneration comparative 2020 (exl. fee reduction) 2019 2018 2017 2016 2015 Base fee Chairman Supervisory Board EUR 45,000 EUR 45,000 EUR 45,000 EUR 40,000 EUR 40,000 EUR 40,000 Member Supervisory Board EUR 35,000 EUR 35,000 EUR 35,000 EUR 30,000 EUR 30,000 EUR 30,000

Committee fee Chair Committee EUR 6,000 EUR 6,000 EUR 6,000 EUR 5,000 EUR 5,000 EUR 5,000 Member Committee EUR 5,000 EUR 5,000 EUR 5,000 EUR 5,000 EUR 5,000 EUR 5,000

Total Supervisory Board remuneration EUR 172,000 EUR 172,000 EUR 186,000 EUR 153,000 EUR 150,000 EUR 150,000

Contents Profile Strategy Report of the Executive Board Outlook Report of the Supervisory Board Financial statements FINANCIAL STATEMENTS FINANCIAL STATEMENTS - CONTENTS Annual Integrated Report 2020 100

101 Consolidated statement of financial position 106 Notes to the consolidated financial statements 172 Company balance sheet at 31 December at 31 December 130 Property, plant and equipment 173 Company income statement 132 Intangible assets 174 Notes to the company financial statements 102 Consolidated statement of profit and loss and 136 Other investments, including derivatives 174 General other comprehensive income 136 Deferred tax assets and liabilities 174 Principles of valuation of assets and liabilities 139 Contract costs and determination of results 103 Consolidated statement of changes in equity 139 Inventories 174 Financial fixed assets 139 Trade and other receivables 174 Receivables 105 Consolidated statement of cash flows 140 Cash and cash equivalents 175 Equity 140 Capital and reserves 176 Current liabilities 142 Earnings per share 176 Financial instruments 144 Loans and borrowings 176 Other income 146 Employee benefits 177 Staff costs 149 Share-based payments 177 Profit appropriation 150 Provisions 177 Commitments not appearing on the balance sheet 151 Contract liabilities 178 Post-balance sheet events 151 Trade and other payables 178 Fees to the auditor 151 Financial instruments 178 Remuneration of and share ownership 161 Leases by the Executive Board and Supervisory Board 161 Capital commitments 161 Contingent assets and liabilities 162 Operating segments 164 Business combinations and acquisitions of non-controlling interests 166 Other income 166 Staff costs 167 Other operating expenses 167 Net finance costs 168 Income tax 168 Reconciliation of effective tax rate 168 Related parties 170 Other notes 171 Post-balance sheet events

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other statement of statement consolidated financial balance income company financial financial position comprehensive income changes in equity of cash flows statements sheet statement statements FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER Annual Integrated Report 2020 101

Note EUR million 2020 2019 1 Note EUR million 2020 2019 1

Assets Equity and liabilities Non-current assets 9, 10 Equity 1 Property, plant and equipment 118.7 111.4 Share capital 29.9 29.9 2 Intangible assets 158.1 115.5 Share premium 51.7 51.7 3 Other investments, including Reserves 117.5 112.7 derivatives 3.0 2.7 Retained earnings 4.3 8.3 4 Deferred tax assets 19.2 14.5 Total equity 203.4 202.6 5 Contract costs 0.6 0.7 Total non-current assets 299.6 244.8 Liabilities 11 Loans and borrowings 104.2 48.9 Current assets 12 Employee benefits 15.5 19.8 6 Inventories 61.7 55.4 4 Deferred tax liabilities 15.9 10.6 Current tax assets 1.4 2.7 14 Provisions 0.7 – 7 Trade and other receivables 53.4 47.1 Total non-current liabilities 136.3 79.3 8 Cash and cash equivalents 13.0 7.1 Total current assets 129.5 112.3 8 Bank overdraft 4.5 2.5 11 Loans and borrowings 7.5 3.1 14 Provisions 1.5 1.4 Current tax liabilities 5.2 2.6 15 Contract liabilities 5.5 6.6 16 Trade and other payables 65.2 59.0 Total current liabilities 89.4 75.2 Total liabilities 225.7 154.5 Total assets 429.1 357.1 Total equity and liabilities 429.1 357.1

1 Restated due to retrospective correction of understated elimination of unrealized profit on inventory transactions between group companies.

CONSOLIDATED Consolidated statement Consolidated Consolidated Notes to the Company Company Notes to the Home STATEMENT OF of profit and loss and other statement of statement consolidated financial balance income company financial FINANCIAL POSITION comprehensive income changes in equity of cash flows statements sheet statement statements FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME Annual Integrated Report 2020 102

Note EUR million 2020 20191 Note EUR million 2020 20191

21 Revenue 396.4 412.4 Other comprehensive income 23 Other income 0.3 – Remeasurements of defined benefit plans2 1.6 (1.3) Total revenue and other income 396.7 412.4 Foreign currency translation differences for foreign operations3 (5.5) (0.8) Changes in inventories of finished goods and work in Net change in fair value of cash flow hedges, progress 2.5 4.4 net of income tax3 0.2 0.3 Raw materials and subcontracted work 203.2 214.6 Other comprehensive income for the period, 24 Staff costs 119.5 124.6 net of income tax (3.7) (1.8) Depreciation and amortisation 30.1 26.2 25 Other operating expenses 31.3 30.7 Total comprehensive income for the period4 0.6 6.5 Result before net finance costs 10.1 11.9 10 Basic earnings per share (EUR), 26 Finance income 0.0 2.2 based on weighted average 0.29 0.61 26 Finance expense (4.1) (2.8) 10 Basic earnings per share (EUR), Share profit or loss of an associate (0.3) (0.3) based on weighted average (diluted) 0.29 0.61 Profit before income tax 5.7 11.0

27, 28 Income tax expense (1.4) (2.7) Profit for the period 4.3 8.3

1 Restated due to retrospective correction of understated elimination of unrealized profit on inventory transactions between group companies. 2 This item will never be reclassified to profit or loss. 3 These items may be reclassified to profit or loss. 4 All profits are attributable to owners of the company as non-controlling interest are not applicable.

Consolidated CONSOLIDATED STATEMENT Consolidated Consolidated Notes to the Company Company Notes to the OF PROFIT AND LOSS AND Home statement of OTHER COMPREHENSIVE statement of statement consolidated financial balance income company financial financial position INCOME changes in equity of cash flows statements sheet statement statements FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Annual Integrated Report 2020 103

Share Share Translation Hedge Reserve for Other Retained Total Note EUR million capital premium reserve reserve own shares reserves earnings equity

Balance at 1 January 2019 27.1 39.8 6.1 (0.4) (6.6) 102.3 13.8 182.1

Restatement prior period1 – – – – – (1.3) – (1.3)

Restated balance at 1 January 2019 27.1 39.8 6.1 (0.4) (6.6) 101.0 13.8 180.8

Total comprehensive income for the period Profit or loss – – – – – – 8.3 8.3

Other comprehensive income 12 Remeasurements of defined benefit plans – – – – – (1.3) – (1.3) Foreign currency translation differences for foreign operations – – (0.8) – – – – (0.8) 9 Net change in fair value of cash flow hedges, net of income tax – – – 0.3 – – – 0.3 Other comprehensive income for the period, net of income tax – – (0.8) 0.3 – (1.3) – (1.8)

Total comprehensive income for the period – – (0.8) 0.3 – (1.3) 8.3 6.5

Transactions with owners, recorded directly in equity Contributions by and distributions to owners 9 Issue of ordinary shares 2.7 23.6 – – 4.2 – – 30.5 Own shares sold – – – – 5.9 (2.3) – 3.6 Own shares repurchased – – – – (7.2) – – (7.2) Share-based payment transactions 0.1 0.0 – – – 0.0 – 0.1 9 Dividends to equity holders – (11.7) – – – – – (11.7) 9 Appropriation of retained earnings – – – – – 13.8 (13.8) –

Balance at 31 December 2019 29.9 51.7 5.3 (0.1) (3.7) 111.2 8.3 202.6

1 2019 figures restated due to retrospective correction of understated elimination of unrealized profit on inventory transactions between group companies.

Consolidated Consolidated statement CONSOLIDATED Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other STATEMENT OF statement consolidated financial balance income company financial financial position comprehensive income CHANGES IN EQUITY of cash flows statements sheet statement statements FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED) Annual Integrated Report 2020 104

Share Share Translation Hedge Reserve for Other Retained Total Note EUR million capital premium reserve reserve own shares reserves earnings equity

Balance at 1 January 2020 29.9 51.7 5.3 (0.1) (3.7) 111.2 8.3 202.6

Total comprehensive income for the period Profit or loss – – – – – – 4.3 4.3

Other comprehensive income 12 Remeasurements of defined benefit plans – – – – – 1.6 – 1.6 Foreign currency translation differences for foreign operations – – (5.5) – – – – (5.5) 9 Net change in fair value of cash flow hedges, net of income tax – – – 0.2 – – – 0.2 Other comprehensive income for the period, net of income tax – – (5.5) 0.2 – 1.6 – (3.7)

Total comprehensive income for the period – – (5.5) 0.2 – 1.6 4.3 0.6

Transactions with owners, recorded directly in equity Contributions by and distributions to owners 9 Issue of ordinary shares – – – – – – – – Own shares sold – – – – – – – – Own shares repurchased – – – – – – – – Share-based payment transactions – – – – 0.3 (0.1) – 0.2 9 Dividends to equity holders – – – – – – – – 9 Appropriation of retained earnings – – – – – 8.3 (8.3) –

Balance at 31 December 2020 29.9 51.7 (0.2) 0.1 (3.4) 121.0 4.3 203.4

Consolidated Consolidated statement CONSOLIDATED Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other STATEMENT OF statement consolidated financial balance income company financial financial position comprehensive income CHANGES IN EQUITY of cash flows statements sheet statement statements FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CASH FLOWS Annual Report 2020 105

Note EUR million 2020 2019 Note EUR million 2020 2019

Cash flows from operating activities Cash flows from investing activities Profit for the period 4.3 7.9 3 Acquisition of subsidiaries (77.7) – Adjustments for: 1 Investments in property, plant and equipment (12.9) (15.5) 26 Net finance costs 4.1 0.6 1 Disinvestments of property, plant and equipment 0.4 0.4 Share profit or loss of an associate 0.3 0.3 2 Investments in intangible fixed assets (3.1) (4.5) Income tax expense 1.4 2.7 2 Disinvestments of intangible fixed assets 0.0 0.1 1,2 Depreciation of property, plant and equipment and (Dis)investments of other investments (0.9) (0.4) software 25.7 24.0 Net cash from investing activities (94.2) (19.9) 2 Amortisation of other intangible assets 4.4 2.2 1,2 Impairment of fixed assets 2.4 0.0 Free cash flow (52.4) 21.0 Share-based payments 0.0 0.0 42.6 37.7 Cash flows from financing activities 11 Payment of lease liabilities (2.9) (2.5) Change in trade and other receivables (0.2) 7.4 11 Proceeds from borrowings (non current) 59.4 – Change in inventories 6.9 7.3 11 Repayment of borrowings (non current) – (30.2) Change in trade and other payables (0.2) (0.1) 11 Proceeds from borrowings (current) 0.2 0.2 Change in provisions (2.0) (1.6) 9 Proceeds from the issue of share capital – 30.5 Change in contract liabilities (1.1) (1.6) 9 Own shares bought – (7.2) 46.0 49.1 Dividends paid – (8.1) Net cash from financing activities 56.7 (17.3) Interest paid (2.9) (2.2) Interest received 0.0 0.1 Change in cash and cash equivalents 4.3 3.7 Tax paid (1.3) (6.1) Net cash flows from operating activities 41.8 40.9 Cash and cash equivalents at 1 January 4.6 0.9 Effect of exchange rate fluctuations on cash held (0.4) 0.0 8 Cash and cash equivalents at 31 December 8.5 4.6

Consolidated Consolidated statement Consolidated CONSOLIDATED Notes to the Company Company Notes to the Home statement of of profit and loss and other statement of STATEMENT consolidated financial balance income company financial financial position comprehensive income changes in equity OF CASH FLOWS statements sheet statement statements FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Integrated Report 2020 106

Reporting entity Kendrion N.V. (the ‘Company’) is domiciled in the Netherlands. The Company’s registered office is at Herikerbergweg 213, 1101 CN Amsterdam. The consolidated financial statements of the Company as at and for the year ended 31 December 2020 comprise the Company and its subsidiaries (together also referred to as the ‘Group’). The Group is involved in the design, manufacture and sale of high-quality electromagnetic systems and components.

Basis of preparation

(a) Statement of compliance The consolidated financial statements as of 31 December 2020 have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations of the standards published by the International Accounting Standards Board (IASB) as adopted by the European Union (hereinafter referred to as EU-IFRS). The Company financial statements are integrated part of the 2020 financial statements of Kendrion N.V.

The financial statements were authorised for issue by the Executive Board on 18 February 2021.

(b) Basis of measurement The financial statements are presented in millions of euros, the euro also being the Group’s functional currency.

The financial statements have been prepared on a historical cost basis except that: ■ derivative financial instruments are stated at fair value; ■ liabilities arising from cash-settled share-based payments arrangements are stated at fair value; ■ the defined benefit liability is recognised as net total of plan assets and present value of the defined benefit obligations; ■ the contingent consideration is stated at fair value.

The methods used to measure the fair values are disclosed in note q.

In preparing these consolidated financial statements, the Executive Board has made judgements and estimates that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.

Executive Board made critical judgements in the process of applying Group's accounting policies and have the most significant effect on the amounts recognised in the consolidated financial statements, see notes: ■ note 2 – goodwill impairment testing; ■ note 12 – measurement of defined benefit obligations.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 107

Executive Board made estimations concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. ■ note 2 – management forecast and growth rate of each cash-generating unit to determine whether goodwill is impaired; ■ note 4 – utilisation of tax losses; ■ note 4 – outcome of tax audits; ■ note 6 – valuation of inventories; ■ note 12 – salary and pension growth of defined benefit obligations; ■ note 14 – provisions; ■ Note 18 – leases.

Reference is made to those notes for steps taken by the Executive Board to make judgements, estimates and assumptions.

Correction of misstatements

IFRS 10 B86 required entities to eliminate full intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between entities of the group. Profits or losses resulting from intragroup transactions that are recognised in assets, such as inventory and fixed assets are to be eliminated in full. ‘During 2020, the Group discovered that the profit on inventory transactions between group companies had not been properly eliminated. As such the Inventory (Consolidated Statement of Financial Position) was overstated, as were the Changes in Inventories (Consolidated Statement of Comprehensive Income). As a result, the Profit for the period was understated. The Group voluntary opted to restate the 2019 figures retrospectively. This has been corrected by restating each of the affected financial statement lines items for prior periods. The following table summarise the impacts on the Group’s consolidated financial statements:

31-12-2019 31-12-2019 01-01-2019 01-01-2019 Restated Restated Consolidated Statement of Financial Position at 31 December Inventory 55.4 56.3 62.2 63.5 Total assets 357.1 358.0 374.0 375.3

Reserves 112.7 114.0 100.1 101.4 Retained earnings 8.3 7.9 13.8 13.8 Total equity and liabilities 357.1 358.0 374.0 375.3

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 108

31-12-2019 31-12-2019 Restated Consolidated Statement of Profit and Loss and Other Comprehensive Income Change in inventories of finished goods and work in progress 4.4 4.8 Income tax expense (2.7) (2.7) Profit for the period 8.3 7.9

Total comprehensive income for the period 6.5 6.1

Basic earnings per share (EUR), based on weighted average 0.61 0.59 Basic earnings per share (EUR), based on weighted average (diluded) 0.61 0.59

Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and by the entities within the Group.

(a) Basis of consolidation (i) Business combinations Business combinations are accounted for using the acquisition method at the acquisition date, which is the date on which control is transferred to the Group. Control refers to the authority to govern the financial and operating policies of an entity to obtain benefits from its activities. When assessing control, the Group takes into consideration potential voting rights that are currently exercisable.

The Group measures goodwill at the acquisition date as: ■ the fair value of the consideration transferred; plus ■ the recognised amount of any non-controlling interests in the acquiree; plus ■ if the business combination is realised in stages, the fair value of the pre-existing equity interest in the acquiree; less ■ the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. If the excess is negative, a bargain purchase gain is recognised immediately in comprehensive income (hereafter also referred to as ‘profit or loss’). The consideration transferred does not include amounts relating to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Transactions costs, other than those associated with the issue of debt or equity securities that the Group incurs in connection with a business combination are expensed as incurred.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 109

Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.

When share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquirees employees (acquirees awards) and relate to past services, then all or part of the amount of the acquirer’s replacement awards is included when measuring the consideration transferred in the business combination. This determination is based on the market-based value of the replacement awards as compared to the market- based value of the acquirees awards and the extent to which the replacement awards relate to past and/or future service.

(ii) Subsidiaries Subsidiaries are entities controlled by the Company. The Company controls an entity if it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences, until the date that control ceases. The shares of third parties in shareholders’ equity and results are stated separately. The accounting policies of subsidiaries are changed, where necessary, to align them with the policies adopted by the Company.

(iii) Transactions eliminated on consolidation Intragroup balances and transactions, as well as any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated when preparing the consolidated financial statements.

(b) Foreign currency (i) Foreign currency transactions Transactions expressed in non-euro zone currencies are translated into euros at exchange rates at the date of the transaction. Monetary assets and liabilities denominated in non-euro zone currencies at the reporting date are translated into euros at the exchange rate at that date. Non-monetary assets and liabilities denominated in non-euro zone currencies that are measured at historical cost are translated at the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in non-euro zone currencies that are measured at fair value are translated in euros at the exchange rates when the fair value was determined. Currency differences on foreign currency transactions are recognised in profit or loss, except loans considered to be part of the net investment, or qualifying cash flow hedges to the extent the hedges are effective.

(ii) Translation of foreign currency financial statements Translation of foreign currency financial statements depends on the functional currency of the company concerned. The closing rate method is applied if the functional currency of the company is other than the euro. With this method, assets and liabilities of non-euro zone operations, including goodwill and fair value adjustments arising at the time of acquisition, are translated into euros at exchange rates at the reporting date. The income and expenses of non-euro zone operations are translated into euros at rates approximating the exchange rates at the date of the transaction. Foreign currency translation differences are recognised in other comprehensive income and accumulated in the translation reserve, which is a component of equity.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 110

On the partial or complete sale of a foreign operation, the related amount is transferred from the translation reserve to profit or loss.

Foreign exchange gains and losses arising from a monetary item receivable from or payable to a non-euro zone operation, of which the settlement is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a non-euro zone operation and are recognised directly in equity, in the translation reserve.

(c) Property, plant and equipment (i) Owned assets Items of property, plant and equipment are measured at cost or assumed cost less accumulated depreciation and accumulated impairment losses (see accounting policy g). The cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and reinstating the site on which they are located, a reasonable proportion of production overheads, and capitalised borrowing costs.

Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

(ii) Lease The Group has applied IFRS 16 using the modified retrospective approach in the financial statements 2018. Therefore, the below policies are applicable from 1 January 2018, except when stated differently.

At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified assets for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16.

This policy is applied to contracts entered into on or after 1 January 2018.

At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone process. However, the Group elects not to separate non-lease components from lease components, and instead account for each lease component and any associated non-lease component as a single lease component for only the following class of underlying asset: plant and equipment and other fixed assets.

If individual leases have similar characteristics (e.g. vehicles leased in one location from one lessor) the Group may apply the portfolio application as a practical expedient.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 111

The Group shall combine two or more contracts entered into at or near the same time with the same counterparty, and account for the contracts as a single contract if one or more of the following criteria are met: ■ The contracts are negotiated as a package with an overall commercial objective that cannot be understood without considering the contracts together; or ■ The amount of consideration to be paid in one contract depends on the price or performance of the other contract; or ■ The rights to use underlying assets conveyed in the contracts (or some rights to use underlying assets conveyed in each of the contracts) form a single lease component.

The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprise the initial amount of the lease liability adjusted for any lease payments made at or before the commencement data, plus any initial direct costs incurred.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same bases as those of owned assets. The right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.

The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased.

Lease liability might include: ■ Fixed lease payments; ■ Amounts expected to be payable under a residual value guarantee; ■ Exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.

The lease liability is subsequently measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, or in the Group’s assessment of exercising a purchase, extension or termination option.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 112

When there is a change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease, this is a lease modification and can result in a separate lease or a change in an existing lease.

If a lease modification qualifies as a change in the accounting for the existing lease then the Group shall remeasure the lease liability based on the present value of the revised lease payments using the interest rate implicit in the lease, if that rate cannot be readily determined, the Group uses the incremental borrowing rate at the effective date of the modification. When lease modifications fully or partially decrease the scope of the lease, the Group decreases the carrying amount of the right-of-use asset to reflect partial or full termination of the lease. Any difference is recognised in profit or loss at the effective date of the modification.

(iii) Subsequent costs The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group, and its cost can be reliably measured. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised as an incurred charge in profit or loss.

(iv) Depreciation Depreciation is charged to profit or loss on a straight-line basis over the estimated useful life of each component of property, plant and equipment. Land is not depreciated.

Leased assets are depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life or the end of the lease term.

Depreciation methods, useful lives and residual values are reviewed annually.

(v) Recognition of transaction results Gains and losses on the disposal of property, plant and equipment are accounted for in other operating income/other expenses in the statement of comprehensive income.

(d) Intangible assets (i) Goodwill Goodwill that arises upon acquisition of a subsidiary is included in intangible assets. For the measurement of goodwill at initial recognition, see note b.

Goodwill is carried at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment (see note g).

Negative goodwill arising on an acquisition is recognised directly in profit or loss.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 113

(ii) Research and development Research and development expenses comprise expenditure on research and development and expenses for customer-specific applications, prototypes and testing. In addition, the expenses are reduced by the amount relating to the application of research results in the development of new or substantially improved products if the related activity meets the recognition criteria for internally generated intangible assets as laid down in IAS 38.

Expenditure on research activities undertaken with the prospect of gaining new scientific or technical knowledge and understanding is recognised in profit or loss as incurred.

Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalised only if the development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete the development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use, and capitalised borrowing costs. Other development expenditure is recognised in profit or loss when incurred.

Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses.

(iii) Other intangible assets Other intangible assets that are acquired by the Group and have finite useful lives are stated at cost less accumulated amortisation (see next page) and accumulated impairment losses (see note g). Based on the purchase price allocation of acquisitions, intangible assets that are part of the other intangible assets and relate to, for example, valued customer relations, trade names and technologies are also recognised.

(iv) Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only if it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed when incurred.

(v) Amortisation Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of the intangible assets unless such lives are indefinite. Goodwill and other intangible assets with an indefinite useful life are systematically tested for impairment at each reporting date. Other intangible assets are amortised from the date they are available for use. Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 114

(e) Financial instruments and other investments Financial instruments Non-derivative financial instruments

Recognition and initial measurement Trade receivables are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the Group becomes a party to the contractual provisions of the instrument. A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

Classification and subsequent measurement Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model. A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL: ■ it is held within a business model whose objective is to hold assets to collect contractual cash flows; and ■ its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. All financial assets not classified as measured at amortised cost or FVOCI are measured at FVTPL.

The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed, and information is provided to management. Financial assets that are held for trading or are managed and whose performance is evaluated on a fair value basis are measured at FVTPL.

Assessment whether contractual cash flows are solely payments of principal and interest For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers: ■ contingent events that would change the amount or timing of cash flows; ■ terms that may adjust the contractual coupon rate, including variable-rate features; ■ prepayment and extension features; and ■ terms that limit the Group’s claim to cash flows from specified assets (e.g. non-recourse features).

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 115

Financial liabilities Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss.

Derecognition The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group also derecognises a financial liability when its terms are modified, and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss.

Offsetting Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the amounts, it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously and the financial assets and financial liabilities are with the same party.

Other investments Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. Interests in associates and the joint venture are accounted for using the equity method. They are initially recognised at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group’s share of the profit or loss and OCI of equity- accounted investees, until the date on which significant influence or joint control ceases. The associate Newton CFV is an equity-accounted investee.

Trade and other receivables Trade and other receivables represent the Group’s right to an amount of consideration that is unconditional. Trade and other receivables are carried at amortised cost, less impairment losses (see note g).

Recognised interest-bearing loans and borrowings After initial recognition, interest-bearing loans and borrowings are carried at amortised cost with any difference between the initial carrying amount and the redemption amount, based on the effective interest method, taken to profit or loss over the respective terms of the loans.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 116

Trade and other payables Trade and other payables are carried at amortised cost.

Cash and cash equivalents Cash and cash equivalents comprise cash and bank balances and other call deposits payable on demand. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management, are included as a component of cash and cash equivalents in the statement of cash flows. They are measured at fair value.

Other non-derivative financial instruments Other non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses.

Derivative financial instruments, including hedge accounting The Group holds derivative financial instruments to hedge its foreign currency and interest rate exposures. Embedded derivatives are separated from the host contract and accounted for separately if the host contract is not a financial asset and certain criteria are met. At 31 December 2020, no embedded derivatives existed.

Derivatives are initially measured at fair value, with attributable transaction costs recognised in the statement of comprehensive income when they are incurred. Subsequent to initial recognition, derivatives are carried at fair value. Any changes are taken to profit or loss.

The Group designates certain derivatives as hedging instruments to hedge the variability in cash flows associated with highly probable forecast transactions arising from changes in foreign exchange rates and interest rates and certain derivatives and non-derivative financial liabilities as hedges of foreign exchange risk on a net investment in a foreign operation. At inception of designated hedging relationships, the Group documents the risk management objective and strategy for undertaking the hedge. The Group also documents the economic relationship between the hedged item and the hedging instrument, including whether the changes in cash flows of the hedged item and hedging instrument are expected to offset each other.

Changes in the fair value of a derivative hedging instrument designated as a cash flow hedge are recognised in other comprehensive income and presented in the hedging reserve. The effective portion of changes in the fair value of the derivative that is recognised in OCI is limited to the cumulative change in fair value of the hedged item, determined on a present value basis, from inception of the hedge. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. The Group designates only the change in fair value of the spot element of forward exchange contracts as the hedging instrument in cash flow hedging relationships. The change in fair value of the forward element of forward exchange contracts (‘forward points’) is separately accounted for as a cost of hedging. When the hedged forecast transaction subsequently results in the recognition of a non-financial item such as inventory, the amount accumulated in the hedging reserve and the cost of hedging reserve is included directly in the initial cost of the non-financial item when it is recognised.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 117

For all other hedged forecast transactions, the amount accumulated in the hedging reserve and the cost of hedging reserve is reclassified to profit or loss in the same period or periods during which the hedged expected future cash flows affect profit or loss.

If the hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is exercised, then hedge accounting is discontinued prospectively. When hedge accounting for cash flow hedges is discontinued, the amount that has been accumulated in the hedging reserve remains in equity until, for a hedge of a transaction resulting in the recognition of a non-financial item, it is included in the non-financial item’s cost on its initial recognition or, for other cash flow hedges, it is reclassified to profit or loss in the same period or periods as the hedged expected future cash flows affect profit or loss.

If the hedged future cash flows are no longer expected to occur, then the amounts that have been accumulated in the hedging reserve and the cost of hedging reserve are immediately reclassified to profit or loss.

(f) Inventories Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs to sell. The cost of inventories of the Group is based on the weighted average cost, and includes expenditure incurred in acquiring the inventories, production or conversion costs, and other costs incurred in bringing them to their current location and condition. The cost of inventories includes an appropriate share of overheads based on normal operating capacity.

(g) Impairment (i) Financial assets The Group recognises impairments for financial assets based on the ‘expected credit loss’ model. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating expected credit losses, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience and informed credit assessment and including forward-looking information. The Group measures loss allowances at an amount equal to the lifetime expected credit losses.

Expected credit losses are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls, being the difference between the cash flows due to the entity in accordance to the contract and the cash flows that the Group expects to receive. The Group makes use of the simplified method for trade receivables and contracts assets as set out in IFRS 9. The expected credit losses for significant financial assets are determined on an individual basis. The remaining financial assets are assessed collectively in groups of assets that have similar credit risk characteristics.

All impairment losses are recognised in the consolidated statement of comprehensive income.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost, the reversal is recognised in profit or loss.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 118

(ii) Non-financial assets The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated at each reporting date.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the ‘cash- generating unit’). For the purpose of impairment testing, the goodwill acquired in a business combination is allocated to cash-generating units that are expected to benefit from the synergies of the combination.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are first allocated to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.

(iii) Reversal of impairment losses An impairment in respect of a receivable carried at amortised cost is reversed, if the subsequent increase in the recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. Impairment losses in respect of goodwill are not reversed. Impairment losses in respect of other assets are reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Reversals of impairment losses are recognised in profit or loss.

(iv) Calculation of recoverable amount The recoverable amount of the Group’s receivables carried at amortised cost is calculated as the present value of estimated future cash flows, discounted at the original effective interest rate (i.e. the effective interest rate computed on initial recognition of these financial assets). Receivables with a short remaining term are not discounted. The recoverable amount of other assets is the greater of their net selling price and value in use.

In determining value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 119

(h) Share capital (i) Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effect.

(ii) Repurchase, disposal and reissue of share capital (treasury shares) When own shares recognised as equity are repurchased, the amount of the consideration paid, including directly attributable costs and net of any tax effects, is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. If treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred respectively to or from other reserves.

(iii) Dividends The holders of ordinary shares are entitled to receive dividends as determined from time to time by the General Meeting of Shareholders. The Executive Board has the authority to decide, with the approval of the Supervisory Board, what portion of the profit will be allocated to the reserves. If applicable, the declared but unpaid dividends are recognised as a liability.

(i) Employee benefits (i) Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss when incurred. Prepaid contributions are recognised as an asset to the extent that a cash refund or reduction in future payments will occur.

(ii) Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The fair value of any plan assets is deducted. The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit liability (asset). The discount rate is the yield at the reporting date on AA credit-rated bonds that have maturity dates approximating the terms of the Group’s obligations and that are denominated in the same currency in which the benefits are expected to be paid.

The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Group, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions

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in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Group. An economic benefit is available to the Group if it is realisable during the life of the plan, or on settlement of the plan liabilities.

Remeasurements arising from defined benefit plans comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest). The Group recognises them immediately in other comprehensive income, and all other expenses related to defined benefit plans as employee benefit expenses in profit or loss. When the benefits of a plan are changed, or when a plan is curtailed, the portion of the changed benefit relating to past service by employees, or the gain or loss on curtailment, is recognised immediately in profit or loss when the plan amendment or curtailment occurs. The Group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs. The gain or loss on a settlement is the difference between the present value of the defined benefit obligation being settled as determined on the date of settlement and the settlement price, including any plan assets transferred and any payments made directly by the Group in connection with the settlement.

(iii) Other long-term service benefits The Group’s net obligation in respect of long-term service benefits other than pension plans is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using the projected unit credit method, discounted to its present value and net of the fair value of any related assets. The discount rate is the yield at the financial position date on AA-credit rated bonds that have maturity dates approximating the terms of the Group’s obligations. Any actuarial gains and losses are recognised in profit or loss in the period in which they arise.

(iv) Share-based payment transactions As only equity settled share-based payments are applicable only the accounting policy for these transactions has been included. The fair value on the grant date of share-based payment awards made to employees and the Executive Board is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, so that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the fair value on the grant date of the share-based payment is measured to reflect such conditions, with no true-up for differences between expected and actual outcomes.

(v) Short-term employee benefits A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Short-term employee benefits are expensed as the related service is provided.

(vi) Termination benefits Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits and when the Group recognised costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the reporting date, then they are discounted.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 121

(j) Provisions A provision is recognised in the statement of financial position if the Group has a present legal or constructive obligation as a result of a past event, that can be estimated reliably and it is probable that settlement of the obligation will involve an outflow of funds. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. The unwinding of the discount is recognised as finance cost.

Restructuring provisions A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating losses are not provided for.

(k) Revenue (i) Revenue from contracts with customers Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration (net of discounts, rebates, returns and excluding VAT) to which the Group expects to be entitled in exchange for those goods or services. The Group has generally concluded that it is the principal in its revenue arrangements because it typically controls the goods or services before transferring them to the customer.

Sale of goods and services Revenue from sale of goods is recognised at the point in time when control of the asset is transferred to the customer, generally on delivery of the goods. The normal credit term is 15 up to 90 days upon delivery.

The Group considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated (e.g. warranties). In determining the transaction price for the sale of equipment, the Group considers the effects of variable consideration (e.g. early payment discount, volume rebates), the existence of significant financing components, noncash consideration, and consideration payable to the customer (if any).

If the consideration in a contract includes a variable amount, the Group estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved. Some contracts for the sale of goods provide customers with a right of return and or volume rebates and or early payment discount. These conditions might give rise to variable consideration.

Certain contracts provide a customer the right to apply an early payment discount when the consideration to which the Group is entitled is transferred to the Group before the contractual agreed credit terms. Those rebates are offset against amounts payable by the customer. To estimate the variable consideration for the expected future early payment rebates, the Group applies the most likely amount method for contracts with a single-volume threshold and the expected value method for contracts with more than one volume threshold. The selected method that best predicts the amount

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of variable consideration is primarily driven by the payment behaviour in the past and or any agreement with the customer when the consideration will be transferred. Revenue from services is recognised over time based on the cost-to-cost method. Revenue from services mainly relates to repairs for customers. The related costs are recognised in profit or loss when they are incurred. Advances received are included in contract liabilities.

Contract assets The Group recognises incremental costs of obtaining a contract and certain costs to fulfil a contract as an asset if the Group expects to recover those costs. Any capitalised contract costs assets will be amortised on a systematic basis that is consistent with the entity’s transfer of the related goods or services to the customer.

Contract liabilities A contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Group transfers goods or services to the customer, a contract liability is recognised when the payment is made, or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Group performs under the contract.

(l) Expenses (i) Lease expenses – short-term leases and leases of low-value assets The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases of machinery that have a lease terms of 12 months or less and lease of low-value assets. Individual lease assets with a new value of EUR 5,000 or less (or any other foreign exchange equivalent) are considered to be low value assets. The Group recognises the lease payments associated with these leases as an expense on straight-line basis over the lease term.

(ii) Net finance costs Finance income comprises interest income on funds invested, and financial assets held to maturity. Interest income is recognised in profit or loss as it accrues, using the effective interest method. Finance expense comprises interest expense on borrowings, commitment fees, accrued interest on provisions, interest on pension liabilities, impairment losses recognised on financial assets and losses on interest rate hedge instruments to the extent they are recognised in profit or loss. All borrowing costs are recognised in profit or loss using the effective interest method.

Realised and unrealised foreign currency gains and losses on monetary assets and liabilities, including changes in fair value of currency hedge instruments that are not qualified as cash flow hedges, are reported on a net basis.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 123

(m) Income tax Income tax for the year comprises current and deferred tax. Income tax is recognised in profit or loss unless it relates to items recognised directly in equity, in which case it is recognised in equity. The Group has determined that interest and penalties related to income taxes, including uncertain tax treatments, do not meet the definition of income taxes, and therefore accounted for them under IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends. Current tax assets and liabilities are offset only if certain criteria are met.

Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: ■ the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit; ■ relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not be reversed in the foreseeable future; ■ arising on the initial recognition of goodwill.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date, and reflects uncertainty related to income taxes, if any.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity; or on different tax entities, but the intention is to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the asset can be applied. Deferred tax assets are reduced if it is no longer probable that the related tax benefit will be realised.

Additional income taxes that arise from the distribution of a dividend are recognised at the same time as the liability to pay the related dividend is recognised.

Uncertain tax items for which a provision is made relate principally to the interpretation of tax legislation regarding arrangements entered into by the Group. Due to the uncertainty associated with such tax items, there is a possibility that, on conclusion of open tax matters at a future date, the final outcome may differ significantly.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 124

(n) Earnings per share The Company presents basic and diluted earnings per share data for its ordinary shares. Basic earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the reporting period. Diluted earnings per share is determined by adjusting profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, for the effects of all dilutive potential ordinary shares.

(o) Segment reporting The Group defines and presents operating segments based on the information that is provided internally to the Executive Board, the Group’s chief operating decision-maker. This is in conformity with IFRS 8 – Operating segments.

On the basis of the criteria of IFRS 8, Kendrion’s business units are the Group’s operating segments. An operating segment is a part of the Group engaging in business activities that may result in revenue and expenses, including the revenue and expenses relating to transactions with any of the Group’s other segments. The Executive Board conducts regular reviews of the operating segment’s results to reach decisions on the resources to be allocated to the segment and to assess its performance, whereby separate financial information for each operating segment is available.

However, and on the basis of the aggregation criteria of IFRS 8.12, these operating segments have been aggregated into two reportable segments: Automotive and Industrial. In accordance with IFRS 8, the Company also discloses general and entity-wide information, including information about geographical areas and major customers of the Group as a whole. More information on the reportable segments is provided in note 20.

(p) New standards and interpretations A number of amendments to standards are effective, and have been endorsed by the European Union, for annual periods beginning on or after 1 January 2020 and therefore apply to the year ended 31 December 2020: ■ Interest Rate Benchmark Reform, amendments to IFRS 9, IAS 39 and IFRS 7 ■ Several amendments to other IAS / IFRS standards

The amendments to IFRS 9, IAS 39 and IFRS 7 have effect on required disclosures in 2020. Further description is included in note 17. The other amendments do not have a significant impact on the Group’s consolidated financial statements.

The following standards or interpretations published by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) are not effective at 31 December 2020 and are not expected to have a significant impact on the Group’s consolidated financial statements: ■ Classification of liabilities as current or non-current (amendments to IAS 1) (expected 2023) ■ IFRS 17 Insurance Contracts (expected 2022) ■ Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) (expected year unknown) ■ IFRS 14 Regulatory Deferral Accounts (expected year unknown)

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 125

(q) Fair values (i) Measurement of fair value Several of the Group’s accounting policies, as well as the information supplied by the Group, require the fair value of both financial and non-financial assets and liabilities to be determined. For valuation and information supplied, the fair value is measured using the methods below. Where applicable, more detailed information on the basis of the fair value measurement is disclosed in the specific notes on the asset or liability in question. The principal methods and assumptions used in estimating the fair value of financial instruments included in the summary are given below.

(ii) Property, plant and equipment The fair value of property, plant and equipment recognised as a result of a business combination is based on market value in use. The market value of property is the estimated amount for which the property in question could be exchanged on the valuation date between a buyer and seller in an arm’s length transaction, in which both parties have acted knowledgeably, prudently and without compulsion. The market value of other items of property, plant and equipment is based on the quoted market prices of comparable assets and goods.

(iii) Intangible assets The fair value of patents and trademarks acquired as part of a business combination is measured on the basis of the discounted estimated royalties that have been avoided through ownership of the patent or trademark. The fair value of customer relationships acquired in a business combination is based on the excess earnings method over multiple periods, valuing the asset in question by deducting a real return on all other assets which in total create the related cash flows. The fair value of other intangible assets is based on the expected discounted value of the cash flows from the use and ultimate sale of these assets.

(iv) Lease liabilities The fair value is estimated on the basis of the present value of future cash flows, discounted at the interest rate for lease contracts of a similar nature. The estimated fair value reflects movements in interest rates.

(v) Inventories The fair value of inventories acquired as part of a business combination is determined on the basis of the estimated selling price as part of normal business operations, less the estimated costs of completion and the selling costs, plus a reasonable profit margin that reflects the completion and sales effort.

(vi) Trade and other receivables/trade and other payables The face value of receivables and liabilities falling due within one year is regarded as a reflection of their fair value. The fair value of all other receivables and liabilities is measured on the basis of present value. The discount factor is based on the risk-free interest rate of the same duration as the receivable and/or payable, plus a credit mark-up reflecting the credit worthiness of the Group.

(vii) Interest-bearing loans The fair value is calculated on the basis of the present value of future repayments of principal and interest at the prevailing market rate of interest, supplemented by a credit mark-up reflecting the credit worthiness of the Group. Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 126

(viii) Derivatives The fair value of forward exchange contracts is based on the present value of the contractual cash flows for the remaining term based on a risk-free interest rate.

(ix) Non-derivative financial liabilities The fair value of non-derivative financial liabilities is determined from information supplied and is based on the present value of future repayments of principal and interest, discounted at a risk-free rate, and a margin based on the credit worthiness of the Group on the reporting date.

(x) Contingent consideration The fair value of contingent considerations arising in a business combination is calculated using the income approach based on the expected payment amounts and their associated probabilities. If appropriate, it is discounted to present value.

(r) Financial risk management The Group has exposure to the following risks from its use of financial instruments: ■ credit risk; ■ liquidity risk; ■ market risk.

This section provides general information about the Group’s exposure to each of the above risks in the course of its normal business operations, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included in the financial instrument section in these consolidated financial statements.

The Executive Board bears the ultimate responsibility for the organisation and control of the Group’s risk management framework. The Group’s risk policy is designed to identify and analyse the risks confronting the Group, implement appropriate risk limits and control measures, and monitor the risks and compliance with the limits. The risk management policy and systems are evaluated at regular intervals and, if necessary, adapted to accommodate changes in market conditions and the Group’s operations.

The Company’s Supervisory Board supervises compliance with the Group’s risk management policy and procedures.

For a more detailed description of risk management and the position of financial risk management in the Group’s framework, see the Report of the Executive Board.

(i) Credit risk Credit risk is the risk of financial loss to the Group in the event that a customer or counterparty to a financial instrument fails to meet its contractual obligations. Credit risks arise primarily from accounts receivable, derivative transactions concluded with banks, and cash positions and deposits held with banks. The Group continually monitors the credit risk within the Group. The Group does not normally require collateral for trade and other receivables or financial assets. Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 127

The credit policy includes an assessment of the creditworthiness of every new major customer before offering payment and delivery terms. This assessment includes external credit ratings or reports if they are available. The creditworthiness of major customers is actively monitored on an ongoing basis.

The Group recognises impairment provisions of an amount equal to the estimated losses on trade and other receivables and other investments. The main component of this provision comprises specific provisions for losses on individual accounts of material significance.

(ii) Credit risk concentration The customer with the largest receivable outstanding accounted for 4% of the trade and other receivables at 31 December 2020. In 2019, the largest customer outstanding at 31 December 2019 accounted for 8% of total trade and other receivables. Other customers individually accounted for 4% or less of the trade and other receivables at 31 December 2020 (2019: 4%). The geographical credit risk from the Group’s direct customers is largely concentrated in Germany. However, as the Group’s most important customers in the various segments of the German market are multinational or global players, this reduces the Group’s dependency on the German market.

(iii) Investments and financial instruments The Group currently does not invest in debt securities. Cash positions and exposure to the financial instruments of financial counterparties are monitored actively. The Group’s main financial counterparties are well-established banks with good creditworthiness. The cash in bank accounts at other than the core-relationship banks is maintained at the minimum level required for the operations of the Group’s companies.

(iv) Liquidity risk The liquidity risk is the risk that the Group is unable to meet its financial obligations at the required time. Liquidity risk management is based on the maintenance of sufficient liquidity in the form of unused (committed) credit facilities or cash to meet present and future financial obligations in normal and adverse circumstances.

A summary of the credit lines available to the Group is disclosed in note 11 of these consolidated financial statements. The majority of the available facilities are provided by a syndicate of lenders consisting of HSBC, Deutsche Bank and ING Bank on an equal basis. The Group had approximately EUR 65 million available within its existing revolving credit facility on the financial position date.

(v) Market risk The market risk is the risk of the deterioration of the Group’s income due to movements in market prices, such as those relating to exchange rates and interest rates. The management of market risk exposure is intended to keep the market risk position within acceptable limits.

Derivatives are used to manage specific market risks. These transactions are carried out within the treasury framework adopted by the Executive Board. If necessary, the Group uses hedge accounting to manage volatility in the statement of comprehensive income.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 128

(vi) Interest rate risk Pursuant to the Group’s policy more than 50% of the exposure to changes in interest rates on borrowings is maintained on a fixed rate basis, taking into account any assets with exposure to changes in interest rates and expected short-term free cash flows. The policy is implemented by making use of derivative financial instruments such as interest rate swaps and interest rate options.

The Group has currently outstanding interest swap contracts with a total underlying notional value of EUR 75 million in order to reduce interest rate risk exposure to increasing market rates. EUR 15 million matures in 2021, EUR 20 million in 2022 and EUR 40 million matures in 2023.

(vii) Currency risk The Group is exposed to exchange rate risks on sales, purchases, equity positions and loans expressed in currencies other than the euro. The Group companies are primarily financed in their own currency. The majority of the revenues and costs of the Group companies are realised in the euro zone. Sales outside the euro zone are partly generated locally and partly through exports from the euro zone. Most of these exports are realised in euros.

The Group’s activities in the Czech Republic have the most significant currency exposure, since the majority of revenue is generated in euros and part of the costs are in Czech korunas. Pursuant to the Group’s policy this currency exposure is hedged to a level of at least 70% for the next four quarters and at least 35% for the next four quarters thereafter. Exchange rate risks are hedged with derivatives. Other currencies are actively monitored and where needed exposure is hedged, however less structural exposure is identified.

The Group also actively hedges intercompany loans in foreign currencies with currency forwards, swaps or back-to-back loans in the same foreign currency.

Pursuant to the Group’s policy for other monetary assets and liabilities denominated in a foreign currency, net exposure is maintained at an acceptable level by buying or selling foreign currencies at spot rates as required to correct short-term imbalances.

The Group’s policy stipulates that, in principle, equity investments and other translation exposures are not hedged.

(viii) Other price risks Steel, copper and rare earth metals used in permanent magnets are the most important commodities for the Group.

Copper constitutes the Group’s main direct exposure to raw material price risks, since copper wire is an important component of electromagnets. Pursuant to the Group’s policy, the sensitivity to copper prices is actively reduced both by concluding fixed-price purchase contracts in the normal course of business with copper wire suppliers and by including raw material clauses in sales contracts. As the need arises the Group can also conclude derivative financial instrument contracts with financial counterparties to hedge the copper risk. No financial derivative contracts for raw materials were outstanding at the balance sheet date.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 129

The Group is also exposed to risks associated with rare earth metals such as neodymium, a component of permanent magnets, which are used in some of the Group’s products. Prices of these commodities have shown significant volatility in the past. The Group closely monitors developments in this market and has increased stock levels and the number of supply sources for these permanent magnets.

Furthermore, agreements have been made with customers representing the majority of the sales volume in this context, to link sales prices to movements in permanent magnet prices.

The Group is mainly indirectly exposed to raw material price risks relating to oil and steel, primarily as part of the purchase prices of machined components. This exposure is monitored and, if feasible, reduced by means of raw material clauses with customers and by concluding fixed-price agreements with suppliers for periods of between six and twelve months. The Kendrion steel contracts also partly govern the purchasing from component suppliers. Raw materials are purchased separately by each business unit, but in accordance with the group policy reviewed periodically with the objective of further increasing and sharing knowledge on commodities and commodity markets between business units, reducing risks and/or prices.

(ix) Capital management The Executive Board’s policy is designed to maintain a strong capital gearing to retain the confidence of investors, creditors and the markets, and to safeguard the future development of the business activities. The Executive Board monitors the return on equity, which the Group defines as the net operating result divided by shareholders’ equity, excluding minority interests. The Executive Board also monitors the level of dividend distributed to ordinary shareholders.

The Executive Board seeks to strike a balance between a higher return that would be achievable with a higher level of borrowed capital and the benefits and security of sound capital gearing.

Kendrion intends to distribute an annual dividend of between 35% and 50% of the net profit, taking into consideration the amount of net profit to be retained to support the medium and long-term strategic plans of the company and to maintain a minimum solvency of 35%.

Neither the Company nor its subsidiaries are subject to any externally imposed capital requirements beyond those stipulated by law.

(s) Government Grants Grants that compensate the Group for expenses incurred are recognised in profit or loss as deduction on the related expense on a systematic basis in the periods in which the expenses are recognised, unless the conditions for receiving the grant are met after the related expenses have been recognised. In this case, the grant is recognised when it becomes receivable.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 130

1 Property, plant and equipment EUR million 2020 2019 Property, plant and equipment owned 104.4 97.6 Property, plant and equipment right-of-use assets 14.3 13.8 Total 118.7 111.4

Property, plant and equipment owned Land and Plant and Other fixed Under EUR million buildings equipment assets construction Total

Cost Balance as at 1 January 2019 56.0 134.7 54.1 16.3 261.1 Acquired, other 1.2 13.3 4.1 6.4 25.0 Disposals (0.2) (2.4) (1.8) (10.3) (14.7) Currency translation differences 0.1 (0.0) 0.0 0.0 0.1 Balance as at 31 December 2019 57.1 145.6 56.4 12.4 271.5

Balance as at 1 January 2020 57.1 145.6 56.4 12.4 271.5 Acquired through business combinations 8.4 3.3 1.8 1.6 15.1 Acquired, other 2.1 10.9 4.1 7.5 24.6 Disposals (0.2) (1.7) (1.7) (11.7) (15.3) Currency translation differences (0.2) (0.6) (0.0) (0.3) (1.1) Balance as at 31 December 2020 67.2 157.5 60.6 9.5 294.8

Depreciation and impairment losses Balance as at 1 January 2019 26.9 92.8 40.8 0.1 160.6 Depreciation for the year 2.3 11.0 4.8 – 18.1 Impairment – 0.0 0.0 – 0.0 Disposals (0.0) (3.0) (1.8) – (4.8) Balance as at 31 December 2019 29.2 100.8 43.8 0.1 173.9

Balance as at 1 January 2020 29.2 100.8 43.8 0.1 173.9 Depreciation for the year 2.8 11.8 4.7 0.0 19.3 Impairment – (0.0) 0.0 0.4 0.4 Disposals (0.2) (1.8) (1.2) – (3.2) Balance as at 31 December 2020 31.8 110.8 47.3 0.5 190.4

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 131

Property, plant and equipment owned Land and Plant and Other fixed Under EUR million buildings equipment assets construction Total

Carrying amounts As at 1 January 2019 29.1 41.9 13.3 16.2 100.5 As at 31 December 2019 27.9 44.8 12.6 12.3 97.6

As at 1 January 2020 27.9 44.8 12.6 12.3 97.6 As at 31 December 2020 35.4 46.7 13.3 9.0 104.4

Right-of-use assets Land and Plant and Other fixed Under EUR million buildings equipment assets construction Total

Cost Balance as at 1 January 2019 15.3 0.1 2.2 – 17.6 Acquired, other 2.2 0.1 0.8 – 3.1 Disposals 0.0 – (0.0) – (0.0) Currency translation differences 0.0 0.0 (0.0) – 0.0 Balance as at 31 December 2019 17.5 0.2 3.0 – 20.7

Balance as at 1 January 2020 17.5 0.2 3.0 – 20.7 Acquired through business combinations 0.8 – 0.0 – 0.8 Acquired, other 2.3 – 0.5 – 2.8 Disposals (0.4) (0.0) (0.0) – (0.4) Currency translation differences (0.2) (0.0) (0.0) – (0.2) Balance as at 31 December 2020 20.0 0.2 3.5 – 23.7

Depreciation and impairment losses Balance as at 1 January 2019 3.1 0.1 1.3 – 4.5 Depreciation for the year 1.7 0.0 0.7 – 2.4 Balance as at 31 December 2019 4.8 0.1 2.0 – 6.9

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 132

Right-of-use assets Land and Plant and Other fixed Under EUR million buildings equipment assets construction Total

Balance as at 1 January 2020 4.8 0.1 2.0 – 6.9 Depreciation for the year 1.9 0.0 0.6 – 2.5 Balance as at 31 December 2020 6.7 0.1 2.6 – 9.4

Carrying amounts As at 1 January 2019 12.2 0.0 0.9 – 13.1 As at 31 December 2019 12.7 0.1 1.0 – 13.8

As at 1 January 2020 12.7 0.1 1.0 – 13.8 As at 31 December 2020 13.3 0.1 0.9 – 14.3

Translation differences are calculated on the carrying amount and reflected in the related item in the cost.

The estimated useful lives of the property, plant and equipment are as follows: Buildings 10 – 30 years Plant and equipment 5 – 10 years Other fixed assets 3 – 7 years

The Executive Board reviews at each reporting period the estimated useful lives of each asset with a definite useful life. During the current year, the Executive Board determined that the useful lives do not require to be revised.

2 Intangible assets Development EUR million Goodwill costs Software Other Total

Cost Balance as at 1 January 2019 92.1 4.9 23.4 40.4 160.8 Acquired, other – 3.1 1.4 – 4.5 Disposals – (0.1) – – (0.1) Currency translation differences 0.5 0.0 (0.0) 0.2 0.7 Balance as at 31 December 2019 92.6 7.9 24.8 40.6 165.9

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 133

Development EUR million Goodwill costs Software Other Total

Balance as at 1 January 2020 92.6 7.9 24.8 40.6 165.9 Acquired through business combinations 25.7 – 0.5 26.3 52.5 Acquired, other – 0.9 1.5 0.7 3.1 Disposals – – 0.0 – 0.0 Currency translation differences (2.3) (0.0) (0.0) (0.4) (2.7) Balance as at 31 December 2020 116.0 8.8 26.8 67.2 218.8

Amortisation and impairment losses Balance as at 1 January 2019 – 0.7 16.8 27.2 44.7 Amortisation for the year – 0.3 3.2 2.2 5.7 Impairment – – – – – Disposals – – – – – Balance as at 31 December 2019 – 1.0 20.0 29.4 50.4

Balance as at 1 January 2020 – 1.0 20.0 29.4 50.4 Amortisation for the year – 0.7 3.2 4.4 8.3 Impairment – 1.9 0.1 – 2.0 Disposals – – – – – Balance as at 31 December 2020 – 3.6 23.3 33.8 60.7

Carrying amounts At 1 January 2019 92.1 4.2 6.6 13.2 116.1 At 31 December 2019 92.6 6.9 4.8 11.2 115.5

At 1 January 2020 92.6 6.9 4.8 11.2 115.5 At 31 December 2020 116.0 5.2 3.5 33.4 158.1

Goodwill has an indefinite estimated useful life. The investments in software during 2020 of EUR 1.5 million (2019: EUR 1.4 million) mainly relates to various software upgrades. The other intangible assets mainly comprise the carrying amount of customer relationships (EUR 31.4 million). These customer relationships were acquired through business combinations.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 134

Depreciation and amortisation Depreciation and amortisation are recognised in the following items in the consolidated statement of comprehensive income:

EUR million 2020 2019 Depreciation and amortisation 30.1 26.2

The estimated useful life of software is between three and eight years. The estimated useful life of other intangible assets is approximately between eight and nineteen years. The Executive Board reviews at each reporting period the estimated useful lives of each intangible asset with a definite useful life.

Impairment testing for cash-generating units containing goodwill During 2020 Kendrion reduced the number of business units from four to three. The business units Industrial Magnetic Systems and Industrial Control Systems were combined into a new business unit Industrial Actuators and Controls as per 1 January 2020. The reason for this merger are the similarities regarding customers, products and production processes. In addition, the business unit Industrial Drive Systems was merged with the acquired INTORQ group into the business unit Industrial Brakes as per 1 April 2020. Reason to combine INTORQ and Industrial Drive Systems is again that both show similarities regarding customers, products and production processes. These newly formed business units have been identified as the smallest identifiable group of assets that generates cashflows that are largely independent of the cash inflows from other assets and thus a change was made to the CGU’s. As a result, the goodwill of the former business units is accumulated within the new business units. For the purposes of impairment testing, goodwill has been allocated to the Group´s CGUs as follows.

Goodwill EUR million 2020 2019 Business Unit - Industrial Actuators and Controls 23.9 24.5 Business Unit - Industrial Brakes 32.8 7.1 Business Unit - Automotive Group 59.3 61.0 116.0 92.6

Key assumptions and method of quantification Pursuant to IAS 36, the Group has performed an impairment test with reference to the goodwill allocated to each individual cash-generating unit. This test was carried out by discounting future cash flows (‘value in use’) to be generated from the continuing use of the cash-generating unit to which the goodwill applies and on the assumption of an indefinite life. The Group did not recognise any impairment of goodwill in this reporting period.

The cash flows for the first five years were based on budgets and mid-term plans drawn up by the local management and approved by the Executive Board. For the subsequent years, the residual value was calculated on the basis of the results in the last year of relevant forecasts, with a terminal growth rate of 1,5% taken into account. The forecasts took no account of tax considerations, i.e. were based on pre-tax cash flow. The weighted average cost of capital (WACC) based on the Capital Asset Pricing Model was also pre-tax. Expansion investments were excluded from the calculations in the residual value. The expected growth in cash flows as a result of these expansion investments was also excluded. Key assumptions used in the

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 135

calculation of recoverable amounts concern discount rates, terminal value growth rates, EBITDA margin growth and revenue growth. Key assumptions are based on past experience, management assessment of revenue and external sources.

Key assumptions Pre-tax discount rate Terminal value growth rate 2020 2019 2020 2019 Business Unit - Industrial Actuators and Controls 10.1% 8.6% 1,5% 1.5% Business Unit - Industrial Brakes 10.1% 8.5% 1,5% 1.5% Business Unit - Automotive Group 9.9% 8.5% 1,5% 1.5%

Discount rate In determining the pre-tax discount rate, first the post-tax average costs of capital were calculated for all cash generating units containing goodwill. The post-tax rate is based on debt leveraging compared to the market value of equity of 20%. All the post-tax weighted average cost of capital rates of cash generating units amount to approximated 8.0%, and these rates were used for calculating the post-tax cash flows.

Terminal value growth rate All cash generating units with goodwill have five years of cash flows included in their discounted cash flow models. A long-term growth rate in perpetuity has been assumed on the basis of a growth rate of 1.5%.

Revenue and EBITDA margin The revenue and EBITDA margin development of the cash generating units are based on the financial budgets for 2021 and the strategic business plans for the 4 years thereafter. The growth rates are based on the expectation of market developments and management’s assessment of the project pipeline of the cash generating units. The average annual growth rates in the first 5 years range between 7% and 11% and the development of the EBITDA margin is in line with the long term group target of at least 15% by 2025. For the period after 2025 a growth rate equal to the expected long term inflation is taken into account for revenue and EBITDA.

Sensitivity to changes in assumptions The recoverable amounts of all cash-generating units with goodwill exceed their carrying amounts. Management has carried out an analysis of sensitivity to changes in the key assumptions. Sensitivity analyses are performed based on a change in an assumption while holding other assumptions constant. The following changes in assumptions are assessed: ■ Increase of the discount rate (post-tax) by 2.0%; ■ Decrease of terminal value growth rate by 1.0%; ■ Decrease of average revenues growth by 3.0%; ■ Decrease of average EBITDA growth by 10.0%.

Based on the sensitivity analyses performed it is concluded that any reasonable changes in the key assumptions would not require an impairment.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 136

3 Other investments, including derivatives

EUR million 2020 2019 Equity-accounted investee 2.2 2.3 Other 0.8 0.4 3.0 2.7

Equity-accounted investee relates to Kendrion Holding USA Inc.’s share in Newton CFV, Inc. On 3 August 2018 Kendrion Holding USA Inc. acquired 30% of all issued shares in Newton CFV, Inc. for an amount of EUR 2.6 million. The proportion voting rights held by Kendrion Holding USA Inc. is 30%. During 2020 an additional investment of EUR 0.3 million was effectuated.

Other investments in 2020 include financial derivatives and recognised upfront and legal fees related to the facility agreement (see note 11). Kendrion amortises these costs over the remaining maturity of the facility. As these costs relate to the facility agreement as a whole and not to individual loans, these costs are not part of the effective interest rate of outstanding loans.

4 Deferred tax assets and liabilities The Group has recognised deferred tax assets for tax loss carry-forwards in the following jurisdictions:

Germany Tax assessments have been submitted for the German companies up to and including 2018. In 2020 tax audits started with regard to the assessment periods 2015-2018 with reference to our Northern Germany operating companies (tax assessment up to and 2014 are final) and assessment periods 2015-2018 with respect to our Southern Germany operating companies (tax assessments up to and 2014 are final).

At 31 December 2020, the tax loss carry forwards amounted to EUR 3.8 million (2019: EUR 8.9 million) (Trade Tax) and EUR 0 million (2019: 11.4 million) (Corporate Income Tax). These are recognised in full, resulting in deferred tax assets of EUR 0.5 million (2019: EUR 2.7 million).

United States of America Tax assessments have been submitted up to and including 2019. The years 2017 up to 2020 are open for tax audits. At 31 December 2020, the tax loss carry forwards amounted to EUR 7.9 million (2019: EUR 3.8 million) (Corporate Income Tax) and EUR 4.2 million (2019: EUR 1.8 million) (State Tax). These are recognised in full, resulting in deferred tax assets of EUR 1.7 million (2019: EUR 0.8 million).

The Netherlands Tax assessments have been submitted up to and including 2018. The years 2014 up to 2020 are still open for potential tax audits. At 31 December 2019, the tax loss carry-forwards amounted to EUR 2.5 million (2019: EUR 2.0 million). These are recognised in full, resulting in deferred tax assets of 0.6 million (2019: EUR 0.4 million). These tax loss carry-forwards originated in 2012 and 2019. The Dutch corporate income tax rate will not change in

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 137

the near future despite earlier communication that it would decrease from 25% in 2019 and 2020 to 21,7% in 2021. This means that deferred tax positions as per 31 December 2020 are revalued and had a positive impact of EUR 0.4 million on net deferred taxes as per 31 December 2020.

Uncertainty over income tax treatments In 2016 a tax audit started for the years 2010-2014 for a German fiscal unity. For the outcome of this tax audit a liability was accounted for, amounting to EUR 4.9 million (2019: 2.4 milion), which includes the estimated impact on subsequent years. This is compensated by assets totaling to EUR 2.4 million for Mutual Agreement Procedures in the Netherlands, UK and Czech Republic, effectively leading to a net position of EUR 2.5 million.

Deferred tax assets and liabilities included in the financial position The deferred tax assets and liabilities can be specified as follows:

EUR million Assets Liabilities Net 2020 2019 2020 2019 2020 2019 Property, plant and equipment 1.3 2.0 4.1 5.5 (2.8) (3.5) Intangible assets 6.6 2.8 11.2 4.7 (4.6) (1.9) Inventories 0.1 0.3 0.3 0.3 (0.2) 0.0 Employee benefits 1.8 1.8 – – 1.8 1.8 Provisions – 0.5 – 0.1 – 0.4 Other items 2.6 2.9 0.3 0.0 2.3 2.9 Tax value of recognised loss carry-forwards 6.8 4.2 – – 6.8 4.2 Deferred tax assets/liabilities 19.2 14.5 15.9 10.6 3.3 3.9

The deferred tax liabilities relate almost entirely to temporary differences between the carrying amount and tax base of property, plant and equipment and intangible assets. These are of a relatively long-term nature, mostly longer than five years.

Deferred tax assets are recognised for unused tax losses to the extent that it is probable that future taxable profits will be available against which they can be set off. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed if the probability of future taxable profits improves. Tax loss carry forward limitation rules apply in certain jurisdictions in which Kendrion has carry forward tax losses. These rules might under certain circumstances lead to a (proportional) forfeiture of recognised and unrecognised carry forward tax losses in case of a direct or indirect change in ownership.

The tax losses carry forward for which no deferred tax assets are recognised in the statement of financial position are reviewed each reporting date. These tax losses carry forward for which no deferred tax assets are recognised in the statement of financial position amount to EUR 0.1 million (expires in period 2024-2029) (2019: EUR 4.0 million).

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 138

Movement in temporary differences during the financial year Net, EUR million 2020 Recognised in other Recognised comprehensive At 31 At 1 January in profit or loss income December Property, plant and equipment (3.5) 0.7 – (2.8) Intangible assets (1.9) (2.7) – (4.6) Inventories 0.0 (0.2) – (0.2) Employee benefits 1.8 0.6 (0.6) 1.8 Provisions 0.4 (0.4) – – Other items 2.9 (0.6) – 2.3 Tax value of loss carry-forwards used 4.2 2.6 – 6.8 3.9 (0.0) (0.6) 3.3

Net, EUR million 2019 Recognised in other Recognised comprehensive At 31 At 1 January in profit or loss income December Property, plant and equipment (3.2) (0.3) – (3.5) Intangible assets (1.7) (0.2) – (1.9) Inventories 0.1 (0.1) – 0.0 Employee benefits 1.6 (0.2) 0.4 1.8 Provisions 0.2 0.2 – 0.4 Other items 2.0 0.9 – 2.9 Tax value of loss carry-forwards used 4.0 0.2 – 4.2 3.0 0.5 0.4 3.9

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 139

5 Contract costs EUR million 2020 2019 Balance at 1 January 0.7 0.4 Costs to obtain a contract with customers – 0.4 Amortisation (0.1) (0.1) Other changes – – Balance at 31 December 0.6 0.7

From time to time, the Group acquires contracts with customers, for which costs are made to acquire these contracts. Those costs are recognised as contracts costs. Contract costs are amortised on a systematic basis that is consistent with the Group’s transfer of the related goods to the customer.

6 Inventories EUR million 2020 20191 Raw materials, consumables, technical materials and packing materials 38.8 33.2 Work in progress 10.9 11.4 Finished goods 10.0 8,6 Goods for resale 2.0 2.2 61.7 55.4

The inventories are presented after accounting for a provision of EUR 9.0 million (2019: EUR 9.2 million) for obsolescence. In 2020, the amount of the write-down to net realisable value of the inventories was EUR 1.7 million (2019: EUR 1.5 million). The write-down and reversals are included in cost of sales.

7 Trade and other receivables EUR million 2020 2019 Trade receivables 47.2 42.9 Other taxes and social security 2.4 1.7 Other receivables 1.9 1.1 Derivatives used for hedging 0.6 0.3 Prepayments 1.3 1.1 53.4 47.1

The credit and currency risks associated with trade and other receivables are disclosed in note 17, and in the financial risk management paragraph of note r. The provision for doubtful debts amounts to EUR 0.7 million (2019: EUR 0.5 million).

1 Restated due to retrospective correction of understated elimination of unrealized profit on inventory transactions between group companies.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 140

8 Cash and cash equivalents EUR million 2020 2019 Bank balances 13.0 7.1 Bank overdrafts (4.5) (2.5) Cash and cash equivalents in the statement of cash flows 8.5 4.6

The bank balances include EUR 0.7 million (2019: EUR 0.8 million) of cash that is held in countries where the Group faces cross-border foreign exchange controls and/or other legal restrictions that inhibit the Groups ability to make these balances available for general use by the Group. The other bank balances are freely available. The interest rate risk for the Group and a sensitivity analysis for financial assets and liabilities are disclosed in notes 17 and r.

9 Capital and reserves Capital and share premium Shares entitled to dividend Shares owned by Kendrion Total number of issued shares 2020 2019 2020 2019 2020 2019 At 1 January 14,753,533 13,396,013 180,451 178,852 14,933,984 13,574,865 Issued shares – 1,593,078 – (235,592) – 1,357,486 Issued shares (share dividend) – 159,923 – (159,923) – – Issued registered shares (share plan) 2,654 1,633 (2,654) – – 1,633 Delivered shares 10,294 162 (10,294) (162) – – Repurchased shares – (397,276) – 397,276 – – At 31 December 14,766,481 14,753,533 167,503 180,451 14,933,984 14,933,984

Issuance of ordinary shares In 2020, in total 2,654 new shares were issued (2019: 1,754,634). During 2020, the Company delivered 12,848 shares to the Executive Board and senior management as part of its share plan and remuneration packages (2019: 1,795). The Company purchased 0 of its own shares in 2020 (2019: 397,276).

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 141

Ordinary shares The authorised share capital consists of:

EUR million 2020 2019 40,000,000 ordinary shares of EUR 2.00 80.0 80.0

Issued share capital Balance at 1 January 2020: 14,933,984 ordinary shares (2019: 13,547,865) 29.9 27.1 Balance at 31 December 2020: 14,933,984 ordinary shares (2019: 14,933,984) 29.9 29.9

Share premium EUR million 2020 2019 Balance as at 1 January 51.7 39.8 Dividend payment – (11.7) Share premium on issued shares – 23.6 Balance as at 31 December 51.7 51.7

Translation reserve The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of associates in the non-euro zone. Gains and losses relating to the translation risk are recognised in equity. The build-up of the cumulative figure commenced on 1 January 2004.

Hedge reserve The hedge reserve comprises the effective portion of the cumulative net movement in the fair value of cash flow hedging instruments relating to hedged transactions that have not yet occurred, net of tax.

The hedge reserve increased by EUR 0.2 million due to the realisation of hedged transactions (2019: EUR 0.3 million increase). The hedge reserve increased by EUR 0.0 million due to valuation effects (2019: EUR 0.0 million decrease). There was no hedge ineffectiveness in 2020 (2019: no hedge ineffectiveness).

Reserve for own shares (treasury shares) The reserve for the Company’s own shares comprises the shares held by the Company for issuance of share dividend and the remuneration packages for the Executive Board. At 31 December 2020, the Company held 167.503 of its own shares (2019: 180,451).

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 142

Other reserves Other reserves are all the reserves other than those shown separately and primarily represent the accumulated, undistributed profits from previous financial years.

Retained earnings In 2020, the result for 2019 was fully transferred to other reserves. Retained earnings in the 2020 financial statements consequently consist solely of the result for 2020.

Dividends The board of directors proposed dividends of 0.25 cents (2019: 0.87 cents) per qualifying ordinary share to be paid on 30 April 2020. However, due to the COVID-19 coronavirus pandemic, the board of directors decided on 7 April 2020 to cancel those proposed 2020 dividends, totalling EUR 3.7 million on qualifying ordinary shares, and not to declare any discretionary dividend payments during 2020. The board of directors believes that the headroom generated by this decision was prudent given the uncertainties arising from the COVID-19 pandemic. After the reporting date, the following dividends were proposed by the board of directors. The dividends have not been recognised as liabilities and there are no tax consequences.

EUR million 2020 2019 0.40 cents per qualifying ordinary share (2019: 0.25 cents) 5.9 –

10 Earnings per share Basic earnings per share The calculation of the basic earnings per share at 31 December 2020 is based on the profit for the period of EUR 4.3 million (2019: EUR 8.3 million) attributable to the holders of ordinary shares and the weighted average number of shares outstanding during the year 2020: 14.764.000 (2019: 13,466,000).

EUR million 2020 20191 Net profit attributable to ordinary shareholders 4.3 8.3

1 Restated due to retrospective correction of understated elimination of unrealized profit on inventory transactions between group companies.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 143

Weighted average number of ordinary shares In thousands of shares 2020 20191 Issued ordinary shares at 1 January 14,934 13,575 Effect of shares issued – 1,357 Effect of shares issued as share dividend – – Effect of shares issued as share plan – 2 Effect of own shares delivered and repurchased – – Ordinary shares outstanding at 31 December 14,934 14,934

Weighted average number of ordinary shares entitled to dividend 14,764 13,466 Basic earnings per share (EUR), based on ordinary shares outstanding at 31 December 0.29 0.55 Basic earnings per share (EUR), based on weighted average 0.29 0.61

Diluted earnings per share The calculation of the diluted earnings per share at 31 December 2020 is based on the profit of EUR 4.3 million (2019: EUR 8.3 million) attributable to the holders of ordinary shares and the weighted average numbers of shares during the year after adjustment for the effects of all dilutive potential ordinary shares of 14,765,000 (2019: 13,484,000).

EUR million 2020 20191 Net profit attributable to ordinary shareholders 4.3 8.3 Effect of dilution (0.0) (0.0) Net profit attributable to ordinary shareholders (diluted) 4.3 8.3

Weighted average number of ordinary shares (diluted) In thousands of shares 2020 20191 Weighted average number of ordinary shares entitled to dividend 14,764 13,466 Weighted average numbers of ordinary shares (diluted) 14,765 13,484 Basic earnings per share (EUR), based on weighted average (diluted) 0.29 0.61

1 Restated due to retrospective correction of understated elimination of unrealized profit on inventory transactions between group companies.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 144

11 Loans and borrowings These notes contain information on the contractual provisions of the Group’s interest-bearing loans and borrowings, which are carried at amortised cost price. For further information on the interest rates, and the currency and liquidity risks borne by the Group, see note 17 and accounting policy r.

EUR million 2020 2019

Non-current liabilities Bank syndicate loans 85.0 35.0 Lease liabilities 12.9 12.3 Mortgage loans 0.8 1.6 Other loans 5.5 – 104.2 48.9

EUR million 2020 2019

Current liabilities Current portion lease liabilities 2.5 2.4 Current portion loans 5.0 0.7 7.5 3.1

At 31 December 2020, the Group had the following credit lines available: ■ EUR 150 million revolving Credit Facility with a syndicate of three banks consisting of HSBC, Deutsche Bank and ING Bank. The Credit Facility is committed until 27 July 2023 and includes an option (accordion option) to increase the facility by a maximum of EUR 75.0 million and the possibility to attract additional alternative sources of debt funding; ■ EUR 9.7 million other loans acquired through business combinations in 2020, with maturities in 2021 – 2026; ■ EUR 15.4 million in leases for buildings, various equipment and vehicles; ■ EUR 1.6 million mortgage loan for the premises of the Kuhnke facilities in Malente, Germany. The loan ultimately matures in 2022; ■ EUR 5.7 million in other overdraft facilities.

At 31 December 2020, the total unutilised amount of the facilities was approximately EUR 65 million.

Banking syndicate credit facility Pursuant to the terms of the credit facility and the agreed covenant relief with the banking syndicate, the Group has agreed to a financial covenant relating to the leverage ratio (interest bearing debt / EBITDA). In accordance with this covenant, the leverage ratio should remain below 4.70 at year-end 2020, below 5.80 per the end of Q1 2021, below 4.75 per the end of Q2 2021, below 3.90 per the end of Q3 2021 and below 3.25 at year-end 2021 and thereafter. After the covenant relief period the leverage ratio can be temporarily increased to a maximum of 3.75 under certain circumstances. This

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 145

covenant is tested quarterly on a 12-month rolling basis. The actual leverage ratio at year-end was 2.3 (2019: 1.1). In addition, the Group has agreed to a EUR 25 million minimum liquidity covenant during the period in which an increased leverage covenant is applicable. Other restrictions include a limit on capital expenditure in excess of the companies’ FY 2021 budget. Provided that the leverage ratio remains below 3.25, the company has the right to request a termination of the waiver before 31 December 2021. Upon termination of the waiver period the additional restrictions will be lifted and conditions of the original credit agreement will apply.

Security provided The Group has provided a mortgage on its premises in Malente, Germany for a EUR 1.6 million loan. A positive pledge is relevant in relation to the EUR 150 million revolving Credit Facility.

Interest-rate sensitivity Interest on the EUR 1.6 million mortgage loan is based on fixed-term interest rates. Interest amounts payable on the EUR 150 million revolving Credit Facility are based on short-term interest rate (mainly three months). The other loans of EUR 9.7 million and leases of EUR 15.4 million both have fixed interest rates. See note 17 and accounting policy r for further details.

Lease liabilities The lease liabilities are payable as follows:

EUR million 2020 2019 < 1 year 2.5 2.4 1 - 5 years 10.9 9.5 > 5 years 2.0 2.8 15.4 14.7

The lease liabilities mostly relate to leases for various buildings & vehicles.

Buildings The Group leases properties for its offices and manufacturing facilities. Some lease arrangements contain conditions to revise the rentals based on changes of indices. The leases run for a period between 3 and 15 years. Majority of the leases include an option to renew the lease for an additional period after the contract term. Key assumption as applied by the Group is that all renewal options, which can be exercised within the mid-term plan period of five years and very likely to be exercised, are taken into consideration on top of the non-cancellable period of the lease.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 146

Vehicles and equipment The Group leases equipment with terms of two to five years. Based on experience the likelihood that these lease arrangements are extended for a substantial period (> three months) is remote. Due to this no periods after the non-cancellable period of the lease are taken into consideration.

12 Employee benefits EUR million 2020 2019 Present value of unfunded obligations 12.5 15.7 Present value of funded obligations 1.3 1.4 Fair value of plan assets (0.9) (0.9) Recognised net liability for defined benefit obligations 12.9 16.2 Liability for long-service leave and anniversaries 2.6 3.6 Total employee benefits 15.5 19.8

The table shows a reconciliation from the opening to the closing balances for the net defined benefit liability and its components:

Defined benefit obligation Fair value of plan assets Net defined benefit liability EUR million 2020 2019 2020 2019 2020 2019 Balance at 1 January 17.1 15.9 0.9 0.9 16,2 15.0 Included in statement of comprehensive income Current service cost 0.1 0.1 – – 0.1 0.1 Past service cost – – – – – – Interest cost (income) 0.1 0.2 0.0 0.0 0.1 0.2 0.2 0.3 0.0 0.0 0.2 0.3 Included in OCI Remeasurement loss (gain): - Actuarial loss (gain) arising from: - Demographic assumptions 0.0 0.1 0.0 0.0 0.0 0.1 - Financial assumptions 0.2 1.7 – – 0.2 1.7 - Experience adjustment (2.5) 0.1 – – (2.5) 0.1 - Return on plan assets excluding interest income – – – – – – Effect of movements in exchange rates – – – – – – (2.3) 1.9 0.0 0.0 (2.3) 1.9

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 147

Defined benefit obligation Fair value of plan assets Net defined benefit liability EUR million 2020 2019 2020 2019 2020 2019

Other Contributions paid by the employer – – – – – – Benefits paid (1.2) (1.0) (0.0) (0.0) (1.2) (1.0) (1.2) (1.0) (0.0) (0.0) (1.2) (1.0) Balance at 31 December 13.8 17.1 0.9 0.9 12.9 16.2

The decrease of the defined benefit obligation, specifically the experience adjustment of EUR 2.5 million negative, mainly relates to the passing of a former board member of one of the operating companies.

Actuarial calculations of employee benefits have not been materially influenced by amendments based on historical experience or by variable assumptions. The change compared to last year mainly relates to the passing of a former board member that made up a large portion of the DBO in one of the Group companies.

The Group contributes to the following post-employment defined benefits plans in several countries, mainly in Germany. Below the characteristics of the major plans are included.

■ A direct commitment in the form of capital has been agreed upon with the employees, who directly receive this commitment as an one-off payment upon retirement. An alternative version is a plan where the employees receive monthly payments instead of an one-off payment. The plans are reviewed on periodic basis. ■ The DB plan entitles a retired employee to receive a monthly pension payment. The amount of these payments is based on individual contracts with the respective employee. The person has to be employed for a certain time. Each further year of employment the employee receives an amount in addition to the contractual fixed amount.

The defined benefit plans are administered by multiple pension funds which are legally separated from the Group. The board of the pension fund is required to act in the best interest of the plan participants and is responsible for setting certain policies (e.g. investment, contribution and indexation policies) of the fund.

The defined benefit plans expose the Group to actuarial risks, such as longevity risk, interest rate risk and market (investment) risk.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 148

The expenses relating to the defined benefit pension arrangements are included in the following line items of the statement of comprehensive income:

Expense recognised in the consolidated statement of comprehensive income regarding defined benefit arrangements EUR million 2020 2019 Staff costs 0.1 0.1 Net finance costs 0.1 0.2 0.2 0.3

Principal actuarial assumptions (expressed as weighted averages) 2020 2019 Discount rate at 31 December 0.4% 0.4% Future salary increases 1.9% 0.1% Future pension increases 1.6% 1.6%

Composition plan assets EUR million 2020 2019 Bonds 0.8 0.8 Equity 0.0 0.0 Real estate 0.0 0.0 Government loans 0.1 0.1 Other 0.0 0.0 Total 0.9 0.9

Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown below.

Sensitivity analysis Defined benefit obligation EUR million Increase Decrease Discount rate (0.5 percent) (0.6) 0.7 Future salary growth (1.0 percent) 0.5 (0.5) Future pension (1.0 percent) 1.1 (1.0) Future mortality (1.0 percent) (0.1) 0.1

Although the analysis does not take account of the full distribution of cash flows expected under the plans, it does provide an approximation of the sensitivity of the assumptions shown. The method for preparing the sensitivity analyses did not changed from prior year.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 149

Assumptions regarding future longevity have been based on published statistics and mortality tables.

At 31 December 2020, the weighted-average duration of the defined benefit obligation was 9.5 years (2019: 10.6 years). The expected payment for 2021 amounts to EUR 1.2 million (2019: EUR 1.3 million).

Liabilities arising from employee benefits The pension plans included defined contribution plans as well as defined benefit plans. In the case of defined contribution plans, the contribution is charged to the year to which it relates. With defined benefit plans, benefit obligations are calculated using the projected unit credit method. Calculations are made by qualified actuaries. The pension liability shown in the statement of financial position represents the present value of the defined benefit obligation at the financial position date minus the fair value of the plan assets at this date. The discount rate methodology for accounting long-term employee benefits in accordance with IAS 19 is determined by the Executive Board. Significant judgement is required when setting the criteria for bonds to be included in the population from which the yield curve is derived. The most significant criteria considered for the selection of bonds include the issue size of the corporate bonds, quality of the bonds and the identification of outliers which are excluded. The discount rate used to calculate the defined benefit obligation is based on the yield on AA-rated high-quality corporate bonds issued in Euros. Since the pension arrangements involve long-term obligations and uncertainties, it is necessary to make assumptions in order to estimate the amount that the Group needs to invest to fund its pension obligations. External actuaries calculate the obligation for defined benefit plans partly on the basis of information provided by the Executive Board, such as future pay rises, the return on plan assets, mortality tables and the probable extent to which pension scheme members will leave the scheme because they have reached retirement age, become incapacitated or left the Group.

The greater part of the defined benefit obligation at year-end 2020 relates to post employment arrangements in Germany, with a small part in Austria. The group companies account individually for the pension schemes. The individual group company is fully liable for its benefit obligation. A portion for the German group companies is reinsured. All pension arrangements accounted for as defined benefit obligations are not open for new participants (< 15% active participants).

Liabilities arising from employee benefits also include liabilities relating to long-service, early retirement and service anniversaries of EUR 2.6 million (2019: EUR 3.6 million) in Germany and Austria.

13 Share-based payments At 31 December 2020, the Group had the following share-based payment arrangements.

Share plan for the Executive Board (equity settled) Details of the remuneration of the Executive Board are provided in note 29.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 150

Share plan for the Management Team (equity settled) In 2020, 28,380 conditional performance shares were granted to the Management Team (2019: 14,177). The conditional performance shares granted will vest upon achievement of performance measured over a three-year period (2020-2022). The number of conditional shares granted is calculated on the basis of the average share price during Q4 2019, which amounts to EUR 19.96.

Loyalty bonus (equity settled) Until 2018, the Company maintained a share incentive scheme, which entitled eligible employees to purchase shares in the Company for an amount up to 50% of their respective net cash bonuses. Employees who retain the shares purchases for a period of three years, and remain employed by the Company during this three year period, will be granted a number of shares equal to the number of shares purchased with their net cash bonus. Pursuant to this incentive scheme, 2,654 shares were allocated in 2020 (2019: 1,817). This number equals the number of shares purchased by eligible employees with their 2016 cash bonuses, and which were subsequently credited to their securities account after the general meeting of shareholders in 2017 (i.e. three-year vesting period 2017-2019). Expenses recognised in profit or loss for the shares amount to EUR 0.1 million (2019: EUR 0.1 million).

Terms & conditions of the share programme (loyalty bonus) Number of instruments Vesting period Shares purchased by eligible employees in 2020 with 2016 cash bonus and credited to their securities account after AGM in 2017 (share price on grant date EUR 30.30) 2,654 2017-2019 Shares to be purchased in 2021 by eligible employees with 2017 cash bonus and credited to their securities account after AGM in 2018 (share price on grant date EUR 33.65) 3,913 2018-2020 Total shares 6,567

14 Provisions EUR million 2020 2019 Balance at 1 January 1.4 2.2 Provisions made during the period 2.2 1.0 Provisions transferred/used during the period (1.4) (1.7) Provisions released during the period (0.0) (0.1) Balance at 31 December 2.2 1.4

Non-current portion 0.7 –

The provisions consist of a restructuring provision of EUR 0.5 million (2019: EUR 1.0) and a provision for the interest portion of the tax audits of EUR 0.8 million (2019: EUR 0.4). The remainder of the restructuring provision is expected to be used in the course of 2021, however the exact timing is not known yet. The amounts and timing of the outflows related to the tax audits are still uncertain.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 151

15 Contract liabilities EUR million 2020 2019 Balance at 1 January 6.6 8.2 Consideration received – – Recognised as revenue in the period (1.1) (1.6) Other changes – – Balance at 31 December 5.5 6.6

The contract liabilities relate to long-term advance consideration received from customers for investments made in equipment in order to fulfil the obligations according to the contract. Considerations are received and based on a mark-up on top of contractual agreed piece price during a certain period of time. Recognition is consistent with the Group’s transfer of the related goods to the customer and released to profit or loss on a systematic basis that is consistent with depreciation and amortisation of related equipment.

16 Trade and other payables EUR million 2020 2019 Trade payables 44.0 41.3 Other taxes and social security contributions 2.8 1.2 Derivatives used for hedging 0.2 0.2 Non-trade payables 5.6 4.9 Accrued expenses 12.6 11.4 65.2 59.0

17 Financial instruments Credit risk The carrying amount of the financial assets represents the maximum credit risk. The maximum credit risk on the reporting date was as follows:

EUR million 2020 2019 Cash and cash equivalents 13.0 7.1 Other long-term investments 3.0 2.7 Current income tax 1.4 2.7 Trade and other receivables 53.4 47.1 Total 70.8 59.6

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 152

Impairment losses Aging analysis of the trade and other receivables EUR million 2020 2019 Gross Provision Gross Provision Within the term of payment 41.5 – 37.2 –

0 – 30 days due 8.0 – 7.1 – 31 – 60 days due 1.8 – 1.1 – > 60 days due 2.8 (0.7) 2.2 (0.5) Total trade and other receivables 54.1 (0.7) 47.6 (0.5)

The provision for trade receivables is used to absorb impairment losses, unless the Group is certain that collection of the amount owed is impossible, in which case the amount is treated as a bad debt and written off against the financial asset in question.

At 31 December 2020 the provision for impairment losses on trade and other receivables relates to several customer invoices that the Group believes to be non-collectible, in whole or in part. Based on historic payment behaviour and financial information currently known all receivables that are not impaired at 31 December 2020 are collectible. This system gives the same outcome as the cash shortfall model as described in IFRS 9. EUR 4.6 million of trade receivables are more as 30 days overdue, of which EUR 0.7 million is provided for. The Group has written off EUR 0.3 million receivables in 2020 (2019: EUR 0.3 million), which are recognised under other operating expenses in the statement of comprehensive income.

The customer with the largest trade receivables outstanding accounted for 4% of the trade and other receivables at 31 December 2020 (2019: 8%). The geographical credit risk from the Group’s direct customers is largely concentrated in Germany. However, as the Group’s most important customers in the various segments of the German market are multinational or global players this reduces the Group’s dependency on the German market.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 153

Credit risk rating grades The credit quality of the Group’s financial assets, contract assets and financial guarantee contracts, as well as the Group’s maximum exposure to credit risk by credit risk rating grades on the reporting date was as follows:

31 December 2020 2020 External Internal 12-month Gross carrying Loss Net carrying Note credit rating credit rating or lifetime ECL amount allowance amount

Trade receivables 7 N/A Low risk – Doubtful Lifetime ECL 47.9 (0.7) 47.2 Contract costs 5 N/A Low risk Lifetime ECL 0.6 – 0.6 Equity-accounted investee 3 N/A Low risk Lifetime ECL 2.3 – 2.3 Other investments 3 N/A Low risk Lifetime ECL 0.8 – 0.8 51.6 (0.7) 50.9

31 December 2019 2019 External Internal 12-month Gross carrying Loss Net carrying Note credit rating credit rating or lifetime ECL amount allowance amount

Trade receivables 7 N/A Low risk – Doubtful Lifetime ECL 43.4 (0.5) 42.9 Contract costs 5 N/A Low risk Lifetime ECL 0.7 – 0.7 Equity-accounted investee 3 N/A Low risk Lifetime ECL 2.3 – 2.3 Other investments 3 N/A Low risk Lifetime ECL 0.4 – 0.4 46.8 (0.5) 46.3

Liquidity risk The liquidity risk is the risk that the Group is unable to meet its financial obligations at the required time. Liquidity risk management is based on the maintenance of sufficient liquidity in the form of unused (committed) credit facilities or cash to meet present and future financial obligations in normal and adverse circumstances. In response to the COVID-19 pandemic and its (potential) impact on global economies and supply chains, Kendrion has taken several steps to protect its liquidity position. Besides taking several measures to reduce costs, working capital and capital expenditure, Kendrion has reached an agreement with its banking syndicate on temporarily increased leverage covenants. The amended banking agreement allows for a total net debt (including IFRS 16) to EBITDA ratio of maximum 5.8 as per the end of Q1 2021 gradually decreasing to 3.25 from 31 December 2021 onwards. Although Kendrion currently operates well within its existing leverage covenants, the agreed covenant relief is designed to assure that Kendrion will continue to be able to invest in its longer-term growth opportunities, also in case of additional unforeseen circumstances as a result of COVID-19.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 154

The contractual terms of the financial obligations, including the estimated interest payments and repayment obligations, are set out below.

31 December 2020 Carrying Contractual EUR million amount cash flows 0 – 6 months 6 – 12 months 1 – 2 years 2 – 5 years › 5 years

Non-derivative financial liabilities Bank syndicate loans 85.0 (88.5) (0.7) (0.7) (1.4) (85.7) – Lease liabilities 15.4 (17.3) (1.4) (1.4) (2.8) (8.2) (3.5) Bank overdrafts 4.5 (4.5) (4.5) – – – – Other loans and borrowings 11.3 (11.6) (3.8) (1.3) (2.5) (3.4) (0.6) Trade and other payables 70.7 (70.7) (70.7) – – – – Tax liabilities 5.2 (5.2) (5.2) – – – –

Derivative financial liabilities Interest rate swap contracts 0.2 (0.3) (0.1) (0.1) (0.1) (0.0) – Forward exchange contracts – – – – – – – Total 192.3 (198.1) (86.4) (3.5) (6.8) (97.3) (4.1)

31 December 2019 Carrying Contractual EUR million amount cash flows 0 – 6 months 6 – 12 months 1 – 2 years 2 – 5 years › 5 years

Non-derivative financial liabilities Bank syndicate loans 35.0 (36.2) (0.2) (0.2) (0.3) (35.5) – Lease liabilities 14.7 (16.2) (1.3) (1.3) (2.7) (7.1) (3.8) Bank overdrafts 2.5 (2.5) (2.5) – – – – Other loans and borrowings 2.3 (2.4) (0.4) (0.4) (0.8) (0.8) – Trade and other payables 65.6 (65.6) (65.6) – – – – Tax liabilities 2.6 (2.6) (0.3) (2.3) – – –

Derivative financial liabilities Interest rate swap contracts 0.2 (0.3) (0.1) (0.1) (0.1) – – Forward exchange contracts – – – – – – – Total 122.9 (125.8) (70.4) (4.3) (3.9) (43.4) (3.8)

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 155

It is not expected that the cash flows included in the maturity analysis should occur significantly earlier, or at significantly different amounts. Within the scope of the Group’s risk management the Group has hedged the currency and interest risks with derivatives, whereby the hedges have been designated as cash flow hedges.

Cash flow hedges (in statement of cash flows) The following table indicates the periods in which the cash flows associated with derivatives that are cash flow hedges are expected to occur.

2020 Carrying Contractual EUR million amount cash flows 0 – 6 months 6 – 12 months 1 – 2 years 2 – 5 years › 5 years

Interest rate swap contracts Assets – – – – – – – Liabilities (0.2) (0.3) (0.1) (0.1) (0.1) (0.0) – Forward exchange contracts Assets 0.4 0.4 0.3 0.1 – – – Liabilities (0.0) (0.0) (0.0) – – – – Total 0.2 0.1 0.2 – (0.1) (0.0) –

2019 Carrying Contractual EUR million amount cash flows 0 – 6 months 6 – 12 months 1 – 2 years 2 – 5 years › 5 years

Interest rate swap contracts Assets – – – – – – – Liabilities (0.2) (0.3) (0.1) (0.1) (0.1) – – Forward exchange contracts Assets 0.3 0.3 0.2 0.1 – – – Liabilities (0.0) (0.0) (0.0) (0.0) – – – Total 0.1 (0.0) 0.1 (0.0) (0.1) – –

Cash flow hedges (in statement of comprehensive income) The following table indicates the periods in which the cash flows associated with derivatives that are cash flow hedges are expected to impact the result.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 156

2020 Carrying Contractual EUR million amount cash flows 0 – 6 months 6 – 12 months 1 – 2 years 2 – 5 years › 5 years

Interest rate swap contracts Assets – – – – – – – Liabilities (0.2) (0.3) (0.1) (0.1) (0.1) (0.0) – Forward exchange contracts Assets 0.4 0.4 0.3 0.1 – – – Liabilities (0.0) (0.0) (0.0) – – – – Total 0.2 0.1 0.2 – (0.1) (0.0) –

2019 Carrying Contractual EUR million amount cash flows 0 – 6 months 6 – 12 months 1 – 2 years 2 – 5 years › 5 years

Interest rate swap contracts Assets – – – – – – – Liabilities (0.2) (0.3) (0.1) (0.1) (0.1) – – Forward exchange contracts Assets 0.3 0.3 0.2 0.1 – – – Liabilities (0.0) (0.0) (0.0) (0.0) – – – Total 0.1 (0.0) 0.1 (0.0) (0.1) – –

Interest-rate risk Part of the Group’s loans is governed by a floating interest rate (usually 3-month EURIBOR). In view of the Treasury Policy, the Group hedges at least 50% of the floating interest rate exposure. To this extent the Group has outstanding interest rate swaps with a notional amount of in total EUR 75 million (2019: EUR 55 million). The aggregate fair value of the outstanding interest rate swaps at 31 December 2020 was EUR 0.2 million negative (2019: EUR 0.2 million negative).

The following table shows the interest rates prevailing at the financial position date for interest-bearing financial liabilities. The majority of all interest expenses relate to senior bank loans. The effective interest rate of these loans equalises the nominal interest rate. The EUR 1.6 million mortgage loan was acquired through business combinations in 2013 and initially recorded at fair value. The effective interest rate of the loan is 3.7%. Other loans are not provided at an upcount or discount and no incremental transaction costs were incurred when the loans were drawn. The other loans were acquired through business combinations in 2020 and initially recorded at fair value.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 157

2020 2019 Nominal Year of Carrying Carrying Currency interest redemption Fair value amount Fair value amount Banking syndicate loans EUR IBOR + 1.7% 2023 85.0 85.0 35.0 35.0 Mortgage loan EUR 6.4% 2022 1.6 1.6 2.4 2.3 Other loans EUR 1.2-2.0% 2021-2026 9.7 9.7 – – Bank overdrafts China CNY PBOC +1.0% 2021 2.1 2.1 2.5 2.5 Bank overdrafts - other Various IBOR + 0.8% 2021 2.3 2.4 – – Lease liabilities Various 2.0% - 7.8% Various 15.5 15.4 14.7 14.7 Total interest-bearing debt 116.2 116.2 54.6 54.5

Sensitivity analysis interest Financial assets and liabilities with a fixed interest rate are not recognised at fair value by processing the value changes in profit or loss. For this reason, a movement in interest rates across the yield curve at 1 January 2020 would not have had a material effect on the 2020 profit for the period.

The Group has hedged a considerable part of the floating interest rate exposure by means of interest rate swaps. When taking into account these swaps and the loans with a fixed rate, in total EUR 86.6 million of the EUR 100.8 million long-term and short-term loans, excluding lease liabilities, at financial year-end have an interest rate which is fixed for one year or longer. Based on the interest-bearing debt levels at year-end and expected cash flow development, a 1%-point increase in the interest rate across the yield curve as from 1 January 2021, will have an increasing effect on interest expenses in 2021 of maximum EUR 0.1 million.

Exchange rate risk The aggregate fair value of the outstanding forward exchange rate contracts concluded to hedge anticipated transactions was EUR 0.4 million positive at 31 December 2020 (2019: positive EUR 0.3 million).

A 10%-point appreciation of the currencies listed hereafter against the euro would increase shareholders’ equity at 31 December 2020 and the result for 2020 by the amounts shown in the following table. A 10%-point depreciation of the listed currencies against the euro would have had the opposite effect. The same test was done for the profit or loss, where the sensitivities for a 10% appreciation or depreciation on 31 December would have had an impact as is shown below.

31 December 2020 Equity Result US dollar 4.3 0.3 Czech koruna 0.9 (0.2) Chinese yuan 2.9 0.7 Romanian lei 1.5 0.1 Indian rupee 0.4 0.1

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 158

31 December 2019 Equity Result US dollar 5.2 0.1 Czech koruna 0.7 (0.2) Chinese yuan 1.3 0.2 Romanian lei 1.4 0.2

Principal exchange rates during the reporting period were as follows:

Applicable currency rates Value of EUR At 31 December 2020 At 31 December 2019 Average over 2020 Pound sterling 0.8990 0.8508 0.8855 Czech koruna 26.2419 25.4078 26.3852 Chinese yuan 8.0225 7.8205 7.8887 US dollar 1.2271 1.1234 1.1433 Romanian lei 4.8683 4.7830 4.8375 Swedish krona 10.0343 10.4468 10.4654

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 159

Fair values of financial instruments The following table shows the fair values and carrying amounts of the financial instruments:

EUR million 2020 2019 Carrying amount Fair value Carrying amount Fair value

Assets carried at amortised costs Receivables (including current tax assets) 54.8 54.8 49.8 49.8 Cash and cash equivalents 13.0 13.0 7.1 7.1 Held to maturity investments 3.0 3.0 2.7 2.7 70.8 70.8 59.6 59.6

Liabilities carried at amortised costs Banking syndicate loans (85.0) (85.0) (35,0) (35.0) Mortgage loan (1.6) (1.6) (2.3) (2.4) Other loans (9.7) (9.7) – – Lease liabilities (15.4) (15.4) (14.7) (14.7) Bank overdraft (4.5) (4.5) (2.5) (2.5) Trade and other payables (including current tax liabilities) (75.9) (75.9) (68.2) (68.2) (192.1) (192.1) (122.7) (122.8)

Liabilities carried at fair value Interest derivatives (0.2) (0.2) (0.2) (0.2) Forward exchange contracts – – – – (0.2) (0.2) (0.2) (0.2)

The Group has no available for sale financial assets and all liabilities at fair value were designated as such upon initial recognition. The loans and receivables consist of the trade and other receivables, including the current tax assets in the statement of financial position. The forward exchange contracts and interest derivatives are included in the trade and other payables in the statement of financial position.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 160

Interest rate used in measuring fair value The interest rate used for discounting estimated cash flows, where applicable, is based on the swap curve at 31 December, augmented by the prevailing credit mark-up, and is as follows:

2020 2019 Derivatives 0.0% 0.0% Leases 1.7% 0.9% Banking syndicate loans 1.7% 0.9% Mortgage loans 1.2% 0.7% Other loans 1.2% 0.7%

Fair value hierarchy In estimating the fair value of an asset or a liability, the Group uses market-observable data to the extent it is available. The fair value calculation method of all assets and liabilities carried at amortised costs is categorised in level 2 of the fair value hierarchy. The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: level 1 quoted prices (unadjusted in active markets for identical assets or liabilities); level 2 inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); level 3 inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Level 1 Level 2 Level 3 Total

31 December 2020 Derivative contracts used for hedging – 0.2 – 0.2 Total – 0.2 – 0.2

31 December 2019 Derivative contracts used for hedging – 0.1 – 0.1 Total – 0.1 – 0.1

Master netting The Company has no master netting agreement in place. All derivative instruments are presented individually as either an asset or liability.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 161

18 Leases The group leases buildings, cars, office equipment and forklifts. The lease term varies between 3 to 15 years. For buildings an option to renew the lease after the lease period is customary. Information about leases for which the Group is a lessee is presented on several places throughout the financial statement: ■ total cash outflow for leases is included in the consolidated statement of cash flows for repayments of lease liabilities (EUR 2.9 million (2019: EUR 2.5 million)) and in note 26 for interest (EUR 0.6 million (2019: EUR 0.6 million)); ■ the carrying amount of right-of-use assets at the end of the reporting period by class of underlying assets, addition to these assets and the depreciation charge for these assets are included in note 1; ■ interest expense on lease liabilities are included in note 25; ■ expenses relating to short-term leases or low-value assets amount to EUR 0.2 million (2019: 0.2 million).

19 Capital commitments As at 31 December 2020 the Group had capital commitments totalling to EUR 5.4 million (2019: EUR 4.3 million).

20 Contingent assets and liabilities Contingent liabilties The Group had guarantees in particular with regard to rentals, financing facilities and post employee benefits totalling to EUR 1.6 million (2019: EUR 1.5 million).

The Group has divested itself of a number of companies in the past. The customary representations and warranties for transactions of this nature are included in the relevant share or asset purchase agreements. The Group, as is customary for transactions of this nature, also issued representations and warranties for potential (tax) claims relating to periods prior to the various divestment dates.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 162

21 Operating segments The Group, in accordance with IFRS 8, has included general and entity-wide disclosures in these consolidated financial statements.

Geographical segments based on physical location of the Group operating companies The revenue and non-current assets per geographic area are specified below.

EUR million Germany Other European countries Asia1 2020 2019 2020 2019 2020 2019 Revenue from transactions with third parties 219.4 223.1 90.3 109.7 46.8 27.4 Other non-current assets 209.9 162.9 33.9 35.2 16.4 10.7 Deferred tax assets 9.3 8.4 4.7 3.1 2.1 0.0 Net liability for defined benefit obligations 12.2 15.3 0.7 0.9 – –

EUR million The Americas Consolidated 2020 2019 2020 2019 Revenue from transactions with third parties 39.9 52.2 396.4 412.4 Other non-current assets 20.2 21.5 280.4 230.3 Deferred tax assets 3.1 3.0 19.2 14.5 Net liability for defined benefit obligations – – 12.9 16.2

Revenue segmented by customer location EUR million 2020 2019 Germany 155.7 182.2 Other European countries 117.6 115.5 Asia 63.0 41.3 The Americas 58.0 71.6 Other countries 2.1 1.8 Total 396.4 412.4

1 Mainly relates to China.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 163

Information about reportable segments Kendrion has split all activities over two segments: Automotive and Industrial. Based on the structure of the Group and the criteria of IFRS 8 – Operating segments, Kendrion has concluded that within this structure the Kendrion business units are the operating segments within the Group. Based on the aggregation criteria of IFRS 8, these operating segments have been aggregated into two reportable segments: Automotive and Industrial. The automotive activities focus on developing and manufacturing innovative high-quality electromagnetic components, solutions and applications for customers in the automotive industry. The industrial activities of the business units Industrial Brakes and Industrial Actuators and Controls focus on developing and manufacturing electromagnetic systems and components for industrial applications. These business units also have similar economic characteristics and display a number of similarities with respect to their technology, production processes, equipment and customers.

EUR million Industrial Automotive Consolidated 2020 2019 2 2020 2019 2 2020 2019 2

Revenue from transactions with third parties 190.3 153.6 206.1 258,8 396.4 412.4 Inter-segment revenue 0.0 0.0 0.1 0.1 0.1 0.1

EBITDA 26.3 17.1 13.9 21.0 40.2 38.1 EBITDA as a % of revenue 13.8% 11.1% 6.7% 8.1% 10.1% 9.2%

EBITA 17.8 10.4 (3.3) 3.7 14.5 14.1 EBITA as a % of revenue 9.3% 6.8% (1.6)% 1.4% 3.7% 3.4%

EBITDA1 29.1 18.8 15.5 25.0 44.6 43.8 EBITDA as a % of revenue1 15.3% 12.2% 7.5% 9.7% 11.3% 10.6%

EBITA1 20.7 12.1 (1.8) 7.7 18.9 19.8 EBITA as a % of revenue1 10.9% 7.9% (0.8)% 3.0% 4.8% 4.8%

Reportable segment assets 219.6 127.3 209.5 229.8 429.1 375.1 Reportable segment employees (FTE) 1,058 892 1,398 1,424 2,456 2,316

1 Normalised for non-recurring costs of EUR 4.4 million for FY 2020 and of EUR 5.7 million for FY 2019. 2 Restated due to retrospective correction of understated elimination of unrealized profit on inventory transactions between group companies.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 164

Major customers Three customers (Volkswagen and ThyssenKrupp Bilstein in Automotive and Siemens in Industrial) individually account for more than 5% of the company’s total revenue.

22 Business combinations and acquisitions of non-controlling interests 2020 Business combinations On 5 November 2019 Kendrion announced that it entered into a definitive agreement to acquire 100% of the shares of the company INTORQ GmbH & Co. KG (hereinafter: INTORQ). This transaction was successfully completed on 8 January 2020, which also marks the date that Kendrion obtained control over INTORQ. From that date onwards the financial statements of INTORQ and its subsidiaries are consolidated by Kendrion and reporting in the Industrial segment. And as from 1 April onwards, INTORQ and IDS were included in a newly formed business unit Industrial Brakes (IB).

INTORQ manufactures spring-applied brakes and electromagnetic brakes and clutches for electrical drive technologies. INTORQ products are used in a diverse range of applications, including geared and servomotors, electric forklifts, wind turbines, cranes, hoists, elevators and escalators. INTORQ has production sites in Aerzen (Germany), Shanghai (China), Atlanta (the U.S.) and Pune (India) and produces approximately 1 million brakes and clutches per year. In 2019, INTORQ had annual revenues of around EUR 55 million and nearly 300 employees. With its strong position in and deep knowledge of the spring-applied brake technology, proven product portfolio and successful and sizeable presence in Shanghai and Aerzen, INTORQ complements Kendrion’s business unit Industrial Drive Systems (IDS) that has a strong position and broad product portfolio in permanent magnet brake technology. Both INTORQ and Kendrion are well-positioned to profit from growing end markets. The combination with INTORQ, creates a leading industrial brake company with a full range of high-quality industrial brakes in an expanded number of growth markets i n Europe, China, the U.S. and India. Specific shared end-markets include electric motors, wind power and elevators. Complimentary markets include geared motors, forklifts, cranes and hoists.

From 8 January 2020, INTORQ contributed revenue of EUR 54 million to the Group’s results. Its contribution to net profit during this period amounted to EUR 3.2 million after deduction of the charges relating to the purchase price allocation. Management considers the revenue and contribution to net profit in the period 1 January 2020 until 8 January 2020 neglectable.

Consideration transferred The total consideration transferred amounted to EUR 64.8 million. This includes an amount of EUR 0.4 million which is payable as per 31 December 2021.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 165

Identifiable assets acquired and liabilities assumed The table on the next page shows the recognised amounts of assets acquired and liabilities assumed at the acquisition date:

Carrying Fair value Recognised amount adjustments value

Intangible fixed assets 0.5 26.3 26.8 Property, plant and equipment 15.9 – 15.9 Deferred tax assets 0.3 4.5 4.8 Inventories 14.4 – 14.4 Trade and other receivables 7.3 – 7.3 Cash and cash equivalents 4.3 – 4.3 Deferred tax liabilities (0.6) (7.4) (8.0) Provisions (0.1) − (0.1) Loans and borrowings (18.5) − (18.5) Trade and other payables (7.8) – (7.8) Total identifiable net assets 15.6 23.5 39.1

Goodwill Goodwill was recognised as a result of the acquisition as follows:

Total consideration transferred 64.8 Fair value of identifiable net assets (39.1) Goodwill 25.7

The goodwill is mainly attributable to the assembled workforce, synergies expected to be achieved from tangible and well-identified cost savings including the integration of selected manufacturing sites in Europe, China and the U.S. and the value attributable to customers.

Acquisition related costs The group incurred acquisition-related costs of EUR 1.8 million related to advisory fees, legal fees and due diligence costs. Of these costs, EUR 1.2 million were recognised in 2019 and EUR 0.6 million in 2020. The costs have been included in other operating expenses in the statement of comprehensive income.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 166

Post acquisition On 4 September 2020, Kendrion (Aerzen) GmbH merged with INTORQ GmbH & Co. KG (now Kendrion INTORQ GmbH) via a legal merger. Kendrion (Aerzen) GmbH was part of the business unit Industrial Brakes and was situated in Aerzen, Germaby. The merger was part of the INTORQ integration plan. As a result of the merger Kendrion (Aerzen) GmbH seized to exist.

2019 On 5 November 2019 Kendrion announced that it has entered into a definitive agreement to acquire INTORQ GmbH & Co. KG. The transaction is valued at an enterprise value of EUR 80 million (on a cash and debt free basis), representing a multiple of 10.4 times FY 2018/19 EBITDA, and 8.0 times FY 2018/19 EBITDA including expected run-rate cost synergies. INTORQ is headquartered in Aerzen (Germany). INTORQ has annual revenues of around EUR 57 million and nearly 300 employees. The closing of this transaction took place on 8 January 2020.

23 Other income EUR million 2020 2019 Net gain on disposal of property, plant and equipment 0.0 – Other 0.3 – 0.3 –

24 Staff costs EUR million 2020 2019 Wages and salaries 96.4 100.2 Social security charges 17.7 18.0 Temporary personnel 2.2 2.7 Contributions to defined contribution plans 0.5 0.3 Expenses related to defined benefit plans 0.1 0.1 Increase in liability for long-service leave 0.1 0.1 Other costs of personnel 2.5 3.2 119.5 124.6

Total number of employees and temporary workers at 31 December (FTE) 2,456 2,316

The number of employees and temporary workers at 31 December 2020 (FTE) working in the Netherlands is 15 (2019: 11). The staff costs 2020 include EUR 1.5 million one-off costs related to the restructuring measures (2019: EUR 2.9 million) and EUR 1.1 million short-time work compensation for social security charges, from Governments in multiple countries.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 167

25 Other operating expenses EUR million 2020 2019 Increase in provision for doubtful debts 0.3 0.3 Premises costs 5.6 5.8 Maintenance expenses 6.1 6.1 Transport expenses 2.0 1.6 Consultancy expenses 6.9 7.2 Sales and promotion expenses 0.9 1.7 Car, travel and representation costs 1.4 2.8 Insurance 2.3 1.7 Impairment of fixed assets 2.4 0.0 Other 3.4 3.5 31.3 30.7

Research & Development expenses (including staff and other operating expenses) for 2020 totalled EUR 28.9 million (2019: EUR 27.1 million) of which EUR 0.7 million is capitalised (2019: EUR 3.1 million).

The other operating expenses 2020 include EUR 2.9 million related to one-off costs (2019: EUR 2.9 million).

26 Net finance costs EUR million 2020 2019 Interest income 0.0 0.1 Net exchange gain – 2.1 Finance income 0.0 2.2

Interest expenses (2.8) (1.7) Interest expenses related to lease liabilities (0.6) (0.6) Interest expenses related to employee benefits (0.1) (0.2) Net exchange loss (0.6) (0.3) Finance expense (4.1) (2.8)

Net financing costs (4.1) (0.6)

The net exchange gain 2020 include EUR 0.0 million related to release currency translation reserve (2019: EUR 2.0 million). The interest expenses 2020 include EUR 0.6 million one-off costs related to the impact of tax audits (2019: EUR 0.1 million).

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 168

27 Income tax EUR million 2020 2019 Current tax charge on year under review (1.4) (2.7) Total corporation tax expenses in the income statement (1.4) (2.7)

The income tax 2020 included EUR 0.2 million one-off costs related to the write-off tax receivable (2019: EUR 0.4 million impact tax audits).

28 Reconciliation of effective tax rate Reconciliation effective tax rate Reconciliation in EUR million 2020 2019 2020 2019 Profit before income tax 5.7 11.0 Income tax expense at local corporation tax rate 25.0% 25.0% 1.4 2.7 Non-deductible expenses 16.0% 5.2% 0.9 0.6 Effect of tax rates in foreign jurisdictions (3.9)% 0.2% (0.2) 0.0 Tax exempt income (0.3)% (11.3)% (0.0) (1.2) Changes in estimates related to prior years (18.4)% 0.1% (1.0) 0.0 Current-year losses for which no deferred tax asset is recognised – 3.6% – 0.4 Additional deductible items 1.4% 1.7% 0.1 0.2 Other movements 4.8% 0.4% 0.2 0.0 24.6% 25.0% 1.4 2.7

The tax-exempt income mainly relates to the release of the translation reserve of a subsidiary. The changes in estimates related to prior years mainly relate to the provision for the impact of tax audits.

29 Related parties Identity of related parties A related-party relationship exists between the Company and its subsidiaries, their managers and executives. The Company has a number of agreements with its subsidiaries relating to the charging of central costs to and from the business units, including management, development, information technology and marketing costs, as well as agreements in respect of Group financing and use of intellectual property. Internal supplies are also obtained within the business units. Intercompany transactions are effectuated at arm’s length market prices. As all subsidiaries are fully consolidated and reflected in these financial statements, the amounts of these transactions are not further specified. For a list of the principal subsidiaries, see page 196.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 169

Compensations of key management personnel The remuneration of the Executive Board and Supervisory Board is as follows:

EUR thousand 2020 2019 Short-term benefits 1,453.7 1,049.9 Post-employment benefits 133.8 102.6 Other long-term benefits – – Share-based payments 120.7 75.4 Termination benefits – – 1,708.2 1,227.9

The total remuneration is included in staff costs (see note 23). For a description of the remuneration policy of the members of the Executive Board, see pages 85-99.

The CEO will, based on this performance, receive a variable remuneration of 65.2% of his gross fixed remuneration. The CEO’s gross variable remuneration amounts to EUR 358,600 (2019: EUR 191,283) which will be paid in cash.

The CFO will, based on this performance, receive a variable remuneration of 38.1% of his gross fixed remuneration. The CFO’s gross variable remuneration amounts to EUR 102,965 (2019: EUR 37,013) which will be paid in cash.

Members of the Executive Board have to invest at least 20% of the net amount of the pay-out of the short-term incentive earned until the required ownership level has been reached as prescribed under Kendrion’s ‘Share ownership guideline’.

The amount charged to the profit or loss regarding the long-term variable remuneration policy was EUR 120,780 (2019: EUR 75,373).

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 170

The vesting and holding periods for shares awarded to the CEO are specified as follows:

CEO (J.A.J. van Beurden) Number of shares Expiry vesting period Expiry holding period 2020 16,533 Expiry performance period 2020-2022 End of 2024 2019 11,559 Expiry performance period 2019-2021 End of 2023 2018 6,960 Expiry performance period 2018-2020 End of 2022 2017* 3,383 End of 2019 End of 2021 2016* 3,970 End of 2018 End of 2020

* The long-term incentive scheme for the years 2016 and 2017 is subject to the terms of the remuneration policy applicable immediately prior to the Executive Board Remuneration Policy that was adopted in April 2018.

CFO (J.H. Hemmen) Number of shares Expiry vesting period Expiry holding period 2020 6,769 Expiry performance period 2020-2022 End of 2024 2019 2,409 Expiry performance period 2019-2021 End of 2023 2018 2017 Not applicable – effective date of appointment to the Executive Board 1 July 2019 2016

Pensions The Executive Board participates in the defined contribution plan of the Company. For 2020, the contribution was EUR 31,949 (2019: EUR 31,238) for the CEO and EUR 25,905 (2019: EUR 12,664) for the CFO.

Transactions with shareholders There were no transactions with shareholders.

Other related party transactions As part of the INTORQ acquisition Kendrion also acquired a Related Party loan. The loan originally amounted to EUR 0.4 million, runs until June 2027 and has an interest percentage of 2%. As per 31 December 2020 the remaining outstanding amount is EUR 0.2 million. The loan is not secured.

30 Other notes The subsidiary Kendrion Holding Germany GmbH, Villingen-Schwenningen, Germany included in these consolidated financial statements makes use of § 264(3) HGB (German Commercial Code). In accordance with that rule, the consolidated financial statements of Kendrion Holding Germany GmbH as of 31 December 2019 were not published. A complete list of all subsidiaries is available from the Amtsgericht in Freiburg im Breisgau (number HRB 704749) and from the Company offices. The following German legal entities are consolidated in these consolidated financial statements: Kendrion (Villingen) GmbH, Kendrion (Donaueschingen/Engelswies) GmbH, Kendrion (Markdorf) GmbH, Kendrion (Aerzen) GmbH, Kendrion Kuhnke GmbH,

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS Annual Integrated Report 2020 171

Kendrion Kuhnke Automation GmbH, Kendrion Kuhnke Automotive GmbH, Kendrion FAS Controls Holding GmbH, Kendrion INTORQ GmbH and Ochrea Grundstücksverwaltungsgesellschaft mbh & Co Vermietungs KG. The subsidiary Kendrion (UK) Ltd. (registration number 1124810), Bradford, United Kingdom included in these consolidated financial statements is exempt from the requirements of section 479A (audit of accounts) of the Companies Act 2006.

31 Post-balance sheet events There were no post/balance sheet events that have to be taken into account in the consolidated financial statements for the year ended 31 December 2020.

Consolidated Consolidated statement Consolidated Consolidated NOTES TO THE Company Company Notes to the Home statement of of profit and loss and other statement of statement CONSOLIDATED FINANCIAL balance income company financial financial position comprehensive income changes in equity of cash flows STATEMENTS sheet statement statements FINANCIAL STATEMENTS COMPANY BALANCE SHEET AT 31 DECEMBER Annual Integrated Report 2020 172 (before profit appropriation)

Note EUR million 2020 2019 1

Fixed assets Property, plant and equipment 0.8 0.9 Intangible assets 0.0 0.0 Other investments, including derivatives 0.7 0.3 1.3 Financial fixed assets 234.9 232.4 Total non-current assets 236.4 233.6

Current assets 1.4 Receivables 1.0 0.5 Cash and cash equivalents 0.0 0.0 Total current assets 1.0 0.5

Total assets 237.4 234.1

1.5 Equity Share capital 29.9 29.9 Share premium 51.7 51.7 Legal reserves 5.1 12.1 Other reserves 112.4 100.6 Retained earnings 4.3 8.3 Total equity 203.4 202.6

1.6 Current liabilities Loans and borrowings 32.0 29.8 Payables 2.0 1.7 Total current liabilities 34.0 31.5

Total equity and liabilities 237.4 234.1

1 Restated due to retrospective correction of understated elimination of unrealized profit on inventory transactions between group companies.

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other statement of statement consolidated financial balance income company financial financial position comprehensive income changes in equity of cash flows statements sheet statement statements FINANCIAL STATEMENTS COMPANY INCOME STATEMENT Annual Integrated Report 2020 173

Note EUR million 2020 2019 1

Revenue – – 1.8 Other income 3.8 3.4 Total revenue and other income 3.8 3.4

1.9 Staff costs 3.4 3.1 Depreciation and amortisation 0.1 0.2 Other operating expenses 1.2 1.9 Result before net finance costs (0.9) (1.8)

Finance income 0.1 0.1 Finance expense (1.0) (1.3) Profit before income tax (1.8) (3.0)

Income tax expense 1.6 0.1 Profit for the period (0.2) (2.9)

Share in results of Group companies after tax 4.5 11.2 1.10 Net profit 4.3 8.3

1 Restated due to retrospective correction of understated elimination of unrealized profit on inventory transactions between group companies.

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other statement of statement consolidated financial balance income company financial financial position comprehensive income changes in equity of cash flows statements sheet statement statements FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS Annual Integrated Report 2020 174

1 Notes to the company financial statements 1.1 General The Company financial statements are part of the 2020 financial statements of Kendrion N.V. (the ‘Company’). The Company is registered at the Chamber of Commerce in The Netherlands under number: 30113646.

1.2 Principles of valuation of assets and liabilities and determination of results In selecting the principles employed in the company financial statements for the valuation of assets and liabilities and determination of results, Kendrion N.V. has made use of the option provided by Section 362, subsection 8, of Book 2 of the Netherlands Civil Code. Consequently, the principles employed in the Company financial statements of Kendrion N.V. for the valuation of assets and liabilities and determination of results (the ‘accounting policies’) are identical to those employed in the consolidated EU-IFRS financial statements. Interests in entities in which Kendrion N.V. has significant influence are measured using the equity method. The consolidated EU-IFRS financial statements have been prepared in accordance with the standards adopted by the International Accounting Standards Board as endorsed for use in the European Union (hereinafter referred to as ‘EU-IFRS’). These policies are discussed in notes a – r.

1.3 Financial fixed assets Interest in Group Loans to Group EUR million companies companies Deferred tax Total 2020 Total 2019 1 Carrying amount at 1 January 231.9 – 0.5 232.4 224.1 Results of Group companies 4.5 – – 4.5 11.2 Movements in loans and borrowings – – – – – Movements in deferred tax assets – – 1.6 1.6 0.1 Other movements (3.6) – – (3.6) (3,0) Carrying amount at 31 December 232.8 – 2.1 234.9 232.4

1.4 Receivables EUR million 2020 2019 Receivables from Group companies 0.4 0.3 Prepayments and accrued income 0.6 0.2 1.0 0.5

All receivables are due within one year.

1 Restated due to retrospective correction of understated elimination of unrealized profit on inventory transactions between group companies.

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company NOTES TO THE Home statement of of profit and loss and other statement of statement consolidated financial balance income COMPANY FINANCIAL financial position comprehensive income changes in equity of cash flows statements sheet statement STATEMENTS FINANCIAL STATEMENTS Annual Integrated Report 2020 175

1.5 Equity

Share Share Translation Hedge Reserve for Reserve for Other Retained EUR million capital premium reserve reserve participations own shares reserves 1 earnings Total 2020 Total 2019 1 Restated balance at 1 January 29.9 51.7 5.3 (0.1) 6.9 (3.7) 104.3 8.3 202.6 182.1 Appropriation of retained earnings – – – – – – 8.3 (8.3) – – Foreign currency translation differences for foreign operations – – (5.5) – – – – – (5.5) (0.8) Net change in fair value of cash flow hedges, net of income tax – – – 0.2 – – – – 0.2 0.3 Issue of ordinary shares – – – – – – – – – 30.5 Own shares sold – – – – – – – – – 3.6 Own shares repurchased – – – – – – – – – (7.2) Share-based payment transactions – – – – – 0.3 (0.1) – 0.2 0.1 Dividend payment – – – – – – – – – (11.7) Other – – – – (1.7) – 3.3 – 1.6 (2.6) Total recognised income and expenses – – – – – – – 4.3 4.3 8.3 Balance at 31 December 29.9 51.7 (0.2) 0.1 5.2 (3.4) 115.8 4.3 203.4 202.6

1.5.1 Share capital The authorised capital of the Company amounts to EUR 80 million, divided into 40 million ordinary shares of EUR 2.00, of which 14,933,984 ordinary shares have been issued.

1.5.2 Share premium The share premium represents revenue from shares issued at more than their nominal value (issued above par). The issued and paid share capital, including share premium, is fiscally recognised capital.

1.5.3 Translation reserve The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of associates outside the euro zone. Gains and losses relating to the translation risk are recognised in equity. The build-up of the cumulative figure commenced on 1 January 2004.

1.5.4 Hedge reserve The hedge reserve comprises the effective share of the cumulative net movement in the fair value of cash-flow hedging instruments relating to hedged transactions that have not yet been executed.

1 Restated due to retrospective correction of understated elimination of unrealized profit on inventory transactions between group companies. Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company NOTES TO THE Home statement of of profit and loss and other statement of statement consolidated financial balance income COMPANY FINANCIAL financial position comprehensive income changes in equity of cash flows statements sheet statement STATEMENTS FINANCIAL STATEMENTS Annual Integrated Report 2020 176

1.5.5 Statutory reserve for participations This reserve pertains to participating interests that are accounted for according to the equity accounting method. The reserve represents the difference between the participating interests’ retained profit and direct changes in equity, as determined on the basis of the Company’s accounting policies, and the share thereof that the Company may distribute. It is shown as the share in the undistributed results of the subsidiaries since they were first valued using the equity method. The amount of any dividend – from these subsidiaries – to which there is an entitlement on adoption of the financial statements is deducted from this reserve.

1.5.6 Reserve for own shares The reserve for the Company’s own shares comprises the cost of the Company shares that are held by the Company for the remuneration package for the Executive Board. At 31 December 2020, the Company held 167,503 of its own shares (2019: 180,451).

1.5.7 Other reserves Other reserves are all the reserves other than those shown separately and comprise primarily the cumulative, undistributed profits from previous financial years.

1.5.8 Retained earnings In 2020, the full result for 2019 was included in other reserves. Retained earnings consequently consist solely of the result for 2020.

1.6 Current liabilities EUR million 2020 2019 Debts to Group companies 31.3 29.1 Lease liability 0.7 0.7 Trade payables 0.3 0.3 Other payables and accrued expenses 1.7 1.4 34.0 31.5

1.7 Financial instruments See note 17 to the consolidated financial statements for details on financial instruments.

1.8 Other income EUR million 2020 2019 Management fee 3.8 3.4 Other – – 3.8 3.4

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company NOTES TO THE Home statement of of profit and loss and other statement of statement consolidated financial balance income COMPANY FINANCIAL financial position comprehensive income changes in equity of cash flows statements sheet statement STATEMENTS FINANCIAL STATEMENTS Annual Integrated Report 2020 177

1.9 Staff costs EUR million 2020 2019 Wages and salaries 2.8 2.5 Social security charge 0.1 0.1 Pension costs 0.4 0.3 Other costs of personnel 0.1 0.2 3.4 3.1

Total number of employees and temporary workers at 31 December (FTE) 15 11

The Company has only defined contribution plans for its employees.

1.10 Profit appropriation Appropriation of net profit EUR million 2020 2019 1 Net profit 4.3 8.3

The Executive Board has decided, with the approval of the Supervisory Board, that the net profit of EUR 4.3 million will be added to the other reserves.

1.11 Commitments not appearing on the balance sheet 1.11.1 Joint and several liability and guarantees The Company and its Group companies have issued guarantees mainly in the context of the financing by financial institutions. The Company has issued declarations of joint and several liability, as referred to in Section 403 of Book 2 of the Netherlands Civil Code, for: ■ Combattant Holding B.V., Zeist; ■ Kendrion Finance B.V., Zeist.

Kendrion NV has a guarantee which relates to the rent of the office in Amsterdam totalling to EUR 0.0 million.

1.11.2 Fiscal unity The Company and its Dutch subsidiaries excluding Landfort II B.V. and Kendrion Marketing B.V. form a tax group for corporation tax purposes. According to the standard terms, each of the companies is jointly and severally liable for corporation tax payable by all the members of the fiscal unity.

1 Restated due to retrospective correction of understated elimination of unrealized profit on inventory transactions between group companies.

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company NOTES TO THE Home statement of of profit and loss and other statement of statement consolidated financial balance income COMPANY FINANCIAL financial position comprehensive income changes in equity of cash flows statements sheet statement STATEMENTS FINANCIAL STATEMENTS Annual Integrated Report 2020 178

1.12 Post-balance sheet events There were no post-balance sheet events that have to be taken into account in the consolidated financial statements for the year ended 31 December 2020.

1.13 Fees to the auditor With reference to Section 2:382a of the Netherlands Civil Code, the following fees have been charged by Deloitte Accountants B.V. and its member firms and affiliates in 2020 and 2019 to the Company, its subsidiaries and other consolidated entities:

EUR thousand 2020 2019 Other Deloitte Other Deloitte Deloitte member firms Total Deloitte member firms Total Accountants B.V. and affiliates Deloitte Accountants B.V. and affiliates Deloitte Audit of financial statements 256.8 347.3 604.1 192.0 252.0 444.0 Other assurance services 30.1 – 30.1 29.6 – 29.6 Tax advisory services – – – – – – Other non-audit services – – – – – – Total 286.9 347.3 634.2 221.6 252.0 473.6

1.14 Remuneration of and share ownership by the Executive Board and Supervisory Board Remuneration of the Executive Board The remuneration of current Executive Board members charged to the Company and Group companies, including pension expenses as referred to in Section 383, subsection 1, of Book 2 of the Netherlands Civil Code, amounted to EUR 1,538,300 (2019: EUR 1,055,900). This remuneration is as follows:

EUR thousand 2020 2019

J.A.J. van Beurden J. H. Hemmen Total J.A.J. van Beurden J. H. Hemmen1 Total Fixed remuneration 517.9 254.5 772.4 508.4 117.5 625.9 Short-term variable remuneration 358.7 102.8 461.5 191.3 37.0 228.3 Long-term variable remuneration 86.7 34.0 120.7 63.6 11.8 75.4 Total remuneration 963.3 391.3 1,354.6 763.3 166.3 929.6 Pension and other expenses 90.3 93.1 183.7 91.4 34.9 126.3 1,053.9 484.4 1,538.3 854.7 201.2 1,055.9

1 Appointed as of 1 July 2019.

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company NOTES TO THE Home statement of of profit and loss and other statement of statement consolidated financial balance income COMPANY FINANCIAL financial position comprehensive income changes in equity of cash flows statements sheet statement STATEMENTS FINANCIAL STATEMENTS Annual Integrated Report 2020 179

The 2020 short-term variable remuneration will be paid in cash after income tax.

For more information on the long-term variable remuneration see pages 169-170.

Remuneration of the Supervisory Board The total remuneration of current and former Supervisory Board members in 2020 amounts to EUR 170,000 (2019: EUR 172,000). This remuneration is as follows:

EUR thousand 2020 2019

H. ten Hove 47 50 M.J.G. Mestrom 38 41 J.T.M. van der Meijs 38 41 E.M. Doll (appointed as of 24 June 2020) 28 – T.J. Wünsche (stepped down as from 30 April 2020) 19 40 170 172

No loans, advances or related guarantees have been given to the Executive Board or Supervisory Board members.

Share ownership by the Executive Board and the Supervisory Board 31 December 2020 31 December 2019 Executive Board J.A.J. van Beurden 32.941 30,000 J.H. Hemmen 2.241 872 Supervisory Board – –

Amsterdam, 18 February 2021

Executive Board Supervisory Board J.A.J. van Beurden H. ten Hove J.H. Hemmen M.J.G. Mestrom J.T.M. van der Meijs E.M. Doll

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company NOTES TO THE Home statement of of profit and loss and other statement of statement consolidated financial balance income COMPANY FINANCIAL financial position comprehensive income changes in equity of cash flows statements sheet statement STATEMENTS OTHER INFORMATION Annual Integrated Report 2020 180

Provisions in the Articles of Association governing the appropriation of profit Under article 35.1 and 35.2 of the Articles of Association of the Company, the Executive Board shall, with the approval of the Supervisory Board, determine which part of the profits is added to the reserves. The profit remaining after transfer to the reserves is available to the General Meeting of Shareholders. The Company can only make payments to the shareholders and other parties entitled to the distributable profit insofar as the shareholders’ equity exceeds the paid-up and called-up part of the capital plus the statutory reserves and exceeds the amounts resulting from the distribution test, performed by the Executive Board at the date of each dividend payment.

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other statement of statement consolidated financial balance income company financial financial position comprehensive income changes in equity of cash flows statements sheet statement statements OTHER INFORMATION Annual Integrated Report 2020 181

To the shareholders and the Supervisory Board of Kendrion N.V.

Independent auditor’s report Report on the audit of the financial statements 2020 included in the annual report Our opinion We have audited the accompanying financial statements 2020 of Kendrion N.V., registered in Amsterdam. The financial statements include the consolidated financial statements and the company financial statements.

In our opinion: ■ The accompanying consolidated financial statements give a true and fair view of the financial position of Kendrion N.V. as at 31 December 2020, and of its result and its cash flows for 2020 in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code. ■ The accompanying company financial statements give a true and fair view of the financial position of Kendrion N.V. as at 31 December 2020, and of its result for 2020 in accordance with Part 9 of Book 2 of the Dutch Civil Code.

The consolidated financial statements comprise: 1. The consolidated statement of financial position as at 31 December 2020. 2. The following statements for 2020: the consolidated statement of financial position, the consolidated statement of profit and loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows. 3. The notes comprising a summary of the significant accounting policies and other explanatory information.

The company financial statements comprise: 1. The company balance sheet as at 31 December 2020. 2. The company profit and loss account for 2020. 3. The notes comprising a summary of the accounting policies and other explanatory information.

Basis for our opinion We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the “Our responsibilities for the audit of the financial statements” section of our report.

We are independent of Kendrion N.V. in accordance with the EU Regulation on specific requirements regarding statutory audit of public-interest entities, the Wet toezicht accountantsorganisaties (Wta, Audit firms supervision act), the Verordening inzake de onafhankelijkheid van accountants bij assurance- opdrachten (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore, we have complied with the Verordening gedrags- en beroepsregels accountants (VGBA, Dutch Code of Ethics).

We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other statement of statement consolidated financial balance income company financial financial position comprehensive income changes in equity of cash flows statements sheet statement statements OTHER INFORMATION Annual Integrated Report 2020 182

Materiality Based on our professional judgement we determined the materiality for the financial statements as a whole at EUR 1,200,000 (2019: EUR 1,200,000). Last year we used profit before tax in determining our materiality. Due to the effect of COVID-19 on the company’s Profit Before Tax we deem this to be a less appropriate benchmark for this year’s audit. We therefore utilized net assets and revenue in determining this year’s materiality. We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the financial statements for qualitative reasons.

Component audits are performed using materiality levels determined by the judgement of the group audit team, considering materiality for the consolidated financial statements as a whole and the reporting structure of the group. Component materiality did not exceed EUR 540,000.

We agreed with the Supervisory Board that misstatements in excess of EUR 60,000, which are identified during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds.

Scope of the group audit Kendrion N.V. is at the head of a group of entities. The financial information of this group is included in the consolidated financial statements of Kendrion N.V.

In establishing the overall group audit strategy and plan, we determined the type of work that needed to be performed at the components by the group engagement team and by the auditors of the components. We directed and supervised the work of our component auditors as part of the group audit. Our group audit mainly focused on significant group entities in terms of size and financial interest, significant risks or complex activities are present, leading to full scope audits performed for 15 components.

By performing the procedures mentioned above at group entities, together with additional procedures at group level, we have been able to obtain sufficient and appropriate audit evidence about the group’s financial information to provide an opinion about the consolidated financial statements.

Due to COVID-19 and related travel restrictions we were unable to visits the components during our 2020 audit. To overcome this limitation, we intensified the contact with our component teams throughout the year

We have performed the following audit procedures: ■ We performed audit procedures at group level in areas such as consolidation, reporting, accounting for the INTORQ acquisition, goodwill impairment testing and taxation. Specialists were involved, amongst others, in the areas of information technology, tax and valuation. ■ At group level, we have performed audit procedures regarding the corporate entities and we also performed full scope audit procedures on Kendrion (Shelby) Inc. ■ For all other relevant foreign components, the group audit team provided detailed written instructions, which – in addition to communicating the requirements of component audit teams – detailed significant audit areas and information obtained centrally relevant to the audit of individual

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other statement of statement consolidated financial balance income company financial financial position comprehensive income changes in equity of cash flows statements sheet statement statements OTHER INFORMATION Annual Integrated Report 2020 183

components including awareness of risk related to management override. Furthermore, we developed a plan for overseeing each component audit team based on its relative significance to the Company and certain other risk characteristics. This included conference calls with component during all stages of the audit whereby fraud specialists accompanied the group engagement team at several preselected components, performing remote file reviews, attending closing meetings and reviewing component audit team deliverables in order to gain sufficient understanding of the work performed. ■ We have performed review procedures or specific audit procedures at other group entities.

Audit coverage Audit coverage of consolidated revenues 96% Audit coverage of consolidated assets 94%

By performing the procedures mentioned above at group entities, together with additional procedures at group level, we have been able to obtain sufficient and appropriate audit evidence about the group’s financial information to provide an opinion about the consolidated financial statements.

Scope of fraud and non-compliance with laws and regulations In accordance with the Dutch Standards on Auditing, we are responsible for obtaining reasonable assurance that the financial statements taken as a whole are free from material misstatements, whether due to fraud or error. Non-compliance with law and regulation may result in fines, litigation or other consequences for the Company that may have a material effect on the financial statements.

Consideration of fraud In identifying potential risks of material misstatement due to fraud, we obtained an understanding of the group and its environment, including the entity’s internal controls. We evaluated the Company’s fraud risk assessment including the possible impact of this on the audit and made inquiries with management, those charged with governance and with others within the Company/Group, including but not limited to, e.g. General Counsel, Global Internal Audit & Risk Manager, Compliance Officer and Controllers. We evaluated several fraud risk factors to consider whether those factors indicated a risk of material misstatement due to fraud. We involved our forensic specialists in our risk assessment, our communication with a number of component auditors and meeting with the entity’s Global Internal Audit & Risk Manager. The level of involvement of our forensic specialists in the communication with our components auditors was determined based upon size and risk.

Following these procedures, and the presumed risks under the prevailing auditing standards, we considered the fraud risks in relation to management override of controls, including evaluating whether there was evidence of bias by the Executive Board, the executive leadership team and other members of management, which may represent a risk of material misstatement due to fraud.

As part of our audit procedures to respond to these fraud risks, we evaluated the design and implementation of the internal controls relevant to mitigate these risks. We performed substantive audit procedures, including detailed testing of journal entries and evaluating the accounting estimates for bias (including retrospective reviews of prior year’s estimates). We also incorporated elements of unpredictability in our audit. The procedures described are in line with the applicable auditing standards and are not primarily designed to detect fraud. Our procedures to address fraud risks did not result in a key audit matter. Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other statement of statement consolidated financial balance income company financial financial position comprehensive income changes in equity of cash flows statements sheet statement statements OTHER INFORMATION Annual Integrated Report 2020 184

Consideration of compliance with laws and regulations We assessed the laws and regulations relevant to the Company through discussion with relevant employees (like Chief Financial Officer, General and Legal Counsel and Global Internal Audit & Risk Manager), discussion with component teams and reading minutes of relevant meetings and reports of internal audit.

As a result of our risk assessment procedures, and while realizing that the effects from non-compliance could considerably vary, we considered law or regulation, adherence to (corporate) tax law and financial reporting regulations, the requirements under the International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and Part 9 of Book 2 of the Dutch Civil Code with a direct effect on the financial statements as an integrated part of our audit procedures, to the extent material for the related financial statements. We obtained sufficient appropriate audit evidence regarding provisions of those laws and regulations generally recognized to have a direct effect on the financial statements. In addition, we considered major laws and regulations applicable to listed companies.

Our procedures are more limited with respect to these laws and regulations that do not have a direct effect on the determination of the amounts and disclosures in the financial statements. Compliance with these laws and regulations may be fundamental to the operating aspects of the business, to the Company’s ability to continue its business, or to avoid material penalties (e.g. compliance with the terms of operating licenses and permits or compliance with environmental regulations) and therefore non-compliance with such laws and regulations may have a material effect on the financial statements. Our responsibility is limited to undertaking specified audit procedures to help identify non-compliance with those laws and regulations that may have a material effect on the financial statements. Our procedures are limited to (i) inquiry of management, the Supervisory Board, the Executive Board and others within the Company as to whether the Company is in compliance with such laws and regulations and (ii) inspecting correspondence, if any, with the relevant licensing or regulatory authorities to help identify non-compliance with those laws and regulations that may have a material effect on the financial statements.

Naturally, we remained alert to indications of (suspected) non-compliance throughout the audit.

Finally, we obtained written representations that all known instances of (suspected) fraud or non-compliance with laws and regulations have been disclosed to us.

Because of the characteristics of fraud, particularly when it involves sophisticated and carefully organized schemes to conceal it, such as forgery, intentional omissions, misrepresentation and collusion, an unavoidable risk remains that we may not detect all fraud during our audit.

Our key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements. We have communicated the key audit matters to the Supervisory Board. The key audit matters are not a comprehensive reflection of all matters discussed.

These matters were addressed in the context of our audit of the financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other statement of statement consolidated financial balance income company financial financial position comprehensive income changes in equity of cash flows statements sheet statement statements OTHER INFORMATION Annual Integrated Report 2020 185

In prior year, we included the valuation of goodwill and the general IT controls as separate key audit matters. These are also included in our 2020 report. For our 2020 report there are two new key audit matters, being bank covenants and the purchase price accounting for the INTORQ acquisition.

1. General IT controls

Description How the key audit matter was addressed in the audit Kendrion has operations in different countries that use one groupwide IT We have evaluated the Group’s relevant general IT controls, including platform (excl. the newly acquired INTORQ entities), which is located and standard processes and procedures. Our work consisted of assessing maintained in Villingen, Germany. In the last couple of years, management the main characteristics of the IT infrastructure and applications and has been in the process of establishing a formal IT control framework and of testing the relevant internal controls related to the infrastructure, further enhancing the internal controls surrounding the overall IT applications and related processes. environment. We consider Kendrion’s IT landscape and general IT controls over financial reporting as our basis for designing audit procedures that IT audit specialists have been deployed to assist us with testing are appropriate for our audit. We have included general IT controls as a the group’s general IT controls. key audit matter because the importance of these controls on the group’s control environment. Observation We have shared our observations and recommendations in relation to general IT controls with management. In 2020, consistent with 2019, we were not able to rely on the general IT controls for our audit approach. Alternatively, we gained the required level of assurance from additional substantive audit procedures.

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other statement of statement consolidated financial balance income company financial financial position comprehensive income changes in equity of cash flows statements sheet statement statements OTHER INFORMATION Annual Integrated Report 2020 186

2. Goodwill impairment – Cash Generation Unit Automotive

Description How the key audit matter was addressed in the audit Goodwill represents 27% of the balance sheet and 57% of total Based on our materiality level, the requirements in IFRS and the applicable auditing standards, we have audited the impairment equity. The goodwill related to the Cash Generation Unit (“CGU”) analysis in relation to the valuation of the goodwill of the Automotive CGU. We have mainly adopted a substantive audit Automotive is 51% of the total goodwill. approach and did not rely on internal controls. Our audit procedures have mainly focused on: The audit procedures carried out on the valuation of goodwill are ■ Testing design and implementation of management’s process and control around the impairment analysis; regarded as a key audit matter due to the relative significance of ■ Evaluate the impairment model used by the Company and verified the mathematical accuracy of this model; the account as well as the deteriorated financial performance of the ■ Obtaining and evaluating independent market research reports and comparing the general growth data to Kendrion’s Automotive CGU over the last years and the impact that COVID-19 expectations; had on the automotive segment in 2020. As a result of deteriorated ■ Obtaining and evaluating the budget of 2021 and the midterm plan that are approved by the Supervisory Board; financial performance over the last years, the headroom (difference ■ Assessment of the key assumptions in the impairment model and discuss the results thereof with the division management, between the expected value of the future cash flows and the Executive Board and the Supervisory Board; carrying amount) decreased. Reason for us to mark the valuation of ■ Assessment of the management estimate in relation to the budget of prior years based on the actual financial results (back- the goodwill within Automotive as a key audit matter in our audit. testing); Within the other CGU’s sufficient headroom exists. ■ Assessment of the methodologies, calculated WACC and the long-term growth percentage, using internal valuation experts; In addition, the valuation of goodwill is susceptible to management ■ Reconciling the already contracted revenue to underlying source documents (like signed contracts) and challenge judgment and estimates and is based on assumptions that are management on their expectation on the pipeline (i.e chance to win, production volumes of OEM’s and future sales price affected by future market and economic conditions. development); ■ Assessment of the anticipated improvement in EBITDA in comparison to the realized EBITDA in 2020 and the expected The assumptions in relation to the expected future cash flows are improvement in the operations; predominantly based on the approved budget for 2021. For the ■ The accuracy and completeness of the related disclosures in the annual report; period thereafter (2022-2025) the company prepared a midterm ■ Performing sensitivity analysis based upon different scenarios with respect to the revenue growth, EBITDA and WACC. business plan. The results of the impairment analysis are most sensitive to: Observation ■ Revenue growth; No impairment has been recognized in the annual report. Based on our procedures performed, we are of the opinion that the ■ EBITDA margin development; and anticipated revenue growth in combination with an improvement in the EBITDA is ambitious, but in alignment with the strategic ■ WACC goals of Kendrion. We expect the Executive Board to be continuously alert on the actual realization of the assumptions included in the budget and projections. The WACC used by Kendrion is below the WACC as determined by our internal valuation specialists. Using a higher WACC and/or not realizing the target impacts the sensitivity significantly as further analyzed and disclosed by Kendrion as part of disclosure note 2 in the annual report. Based on the procedures performed, we are of the opinion that the assumptions used by Kendrion in the calculations are acceptable and deem the related disclosures in the annual report sufficiently.

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other statement of statement consolidated financial balance income company financial financial position comprehensive income changes in equity of cash flows statements sheet statement statements OTHER INFORMATION Annual Integrated Report 2020 187

3. Purchase Price Allocation INTORQ acquisition

Description How the key audit matter was addressed in the audit On 8 January 2020, Kendrion completed the acquisition of INTORQ. Based on the requirements of IFRS 3, we audited the recognition of the acquisition for which we used a substantive approach. We inspected the The total Purchase Price of INTORQ was EUR 80 million of which EUR Share Purchase Agreement and validated that the purchase price is paid 25.7 million was allocated as Goodwill. Due to its significance we have to the seller. An important element in the “Purchase Price Allocation” is reported this as a key audit matter. the identification and valuation of the acquired (intangible) assets and liabilities. We audited the identification of (intangible) assets and liabilities The acquisition has a number of implications for our audit. Firstly, auditing based on our knowledge of the operational activities of INTORQ and the the determination of the purchase price, and the necessary “Purchase reasons for the acquisition and used internal valuation experts to validate Price Allocation”. In addition to auditing the transaction itself, we have to the valuation based on general accepted valuation models. We plan the nature, timing and extent of the audit of the INTORQ activities recalculated the amount of goodwill to be recognized and assessed the and entities in accordance with the audit standard (the so-called ISA 600- allocation to cash-generating units. group audit). We also validated the sufficiency of the disclosures in the annual accounts in relation to the acquisition.

We further gained insights in the activities and business processes of INTORQ to enable detailed risk analyses. The audit procedures in relation to those risks are mainly performed on a substantive basis by component auditors in Germany and China. The component auditors tested the relevant internal controls within INTORQ. Relevant findings have been included in a management letter. On group level, we additionally tested the design and implementation of internal control measures in relation to INTORQ focused on the consolidation and financial reporting.

Observation Based on our materiality and procedures performed, we are of the opinion that the recognition of the acquisition of INTORQ is in line with the requirements of IFRS 3 and that the acquisition is adequately disclosed in the 2020 annual accounts in order to meet the information needs of the users.

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other statement of statement consolidated financial balance income company financial financial position comprehensive income changes in equity of cash flows statements sheet statement statements OTHER INFORMATION Annual Integrated Report 2020 188

4. Bank covenants

Description How the key audit matter was addressed in the audit In August 2020, Kendrion has reached an agreement on key terms with Based on our materiality level, the requirements in IFRS and the its banking syndicate to increase the leverage covenant for the quarters applicable auditing standards, we have audited the revised bank up to and including the fourth quarter of 2021. The agreement in principle agreements. We have mainly adopted a substantive audit approach and allows for a total net debt (including IFRS 16) to EBITDA ratio of maximum did not rely on internal controls. 5.8 as per the end of Q1 2021 gradually decreasing to 3.25 from 31 December 2021 onwards. Although Kendrion currently operates well Our audit procedures have mainly focused on: within its existing leverage covenants, we deem this to be key audit matter ■ Obtaining and evaluating the revised loan agreements; as there are relevant accounting and disclosure requirements related to ■ Evaluate the accounting treatment of the additional amendment fee this. paid to the lenders; ■ Recalculated management calculation for the net debt to equity ratio At the end of 2020, the leverage ratio (based on definitions in the existing and verified that the ratio is below the maximum agreed ration per 31 loan documentation) was 2.3 against a permitted financial covenant level December 2020; of 4.70. ■ Verified that management operates in compliance with the revised agreement; ■ Assess that the disclosure in footnote 11 is accurate and complete and in accordance with the revised loan agreement.

Observation Based on the procedures performed, we are of the opinion that the accounting followed by Kendrion is in accordance with IFRS and deem the related disclosures in the annual report sufficiently insightful to point the users of the annual report to the existing covenants.

Report on the other information included in the Annual Report In addition to the financial statements and our auditor’s report thereon, the annual report contain other information that consists of: ■ Report of the Executive Board. ■ Report of the Supervisory Board. ■ Remuneration Report. ■ Other Information as required by Part 9 of Book 2 of the Dutch Civil Code. ■ Other Information as included in the annual report.

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other statement of statement consolidated financial balance income company financial financial position comprehensive income changes in equity of cash flows statements sheet statement statements OTHER INFORMATION Annual Integrated Report 2020 189

Based on the following procedures performed, we conclude that the other information: ■ Is consistent with the financial statements and does not contain material misstatements. ■ Contains the information as required by Part 9 of Book 2 of the Dutch Civil Code.

We have read the other information. Based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements.

By performing these procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil Code and the Dutch Standard 720. The scope of the procedures performed is substantially less than the scope of those performed in our audit of the financial statements.

Management is responsible for the preparation of the other information, including the Report of the Executive Board, in accordance with Part 9 of Book 2 of the Dutch Civil Code, and the other information as required by Part 9 of Book 2 of the Dutch Civil Code.

Report on other legal and regulatory requirements Engagement We were engaged by the Supervisory Board as auditor of Kendrion N.V. on April 13, 2015, as of the audit for the year 2015 and have operated as statutory auditor ever since that financial year.

No prohibited non-audit services We have not provided prohibited non-audit services as referred to in Article 5(1) of the EU Regulation on specific requirements regarding statutory audit of public-interest entities.

Description of responsibilities regarding the Financial Statements Responsibilities of management and the Supervisory Board for the financial statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code. Furthermore, management is responsible for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.

As part of the preparation of the financial statements, management is responsible for assessing the company’s ability to continue as a going concern. Based on the financial reporting frameworks mentioned, management should prepare the financial statements using the going concern basis of accounting unless management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so.

Management should disclose events and circumstances that may cast significant doubt on the company’s ability to continue as a going concern in the financial statements.

The Supervisory Board is responsible for overseeing the company’s financial reporting process.

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other statement of statement consolidated financial balance income company financial financial position comprehensive income changes in equity of cash flows statements sheet statement statements OTHER INFORMATION Annual Integrated Report 2020 190

Our responsibilities for the audit of the financial statements Our objective is to plan and perform the audit assignment in a manner that allows us to obtain sufficient and appropriate audit evidence for our opinion.

Our audit has been performed with a high, but not absolute, level of assurance, which means we may not detect all material errors and fraud during our audit.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.

We have exercised professional judgement and have maintained professional skepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our audit included e.g.: ■ Identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, designing and performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. ■ Obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. ■ Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. ■ Concluding on the appropriateness of management’s use of the going concern basis of accounting, and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the company to cease to continue as a going concern. ■ Evaluating the overall presentation, structure and content of the financial statements, including the disclosures. ■ Evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Because we are ultimately responsible for the opinion, we are also responsible for directing, supervising and performing the group audit. In this respect we have determined the nature and extent of the audit procedures to be carried out for group entities. Decisive were the size and/or the risk profile of the group entities or operations. On this basis, we selected group entities for which an audit or review had to be carried out on the complete set of financial information or specific items.

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other statement of statement consolidated financial balance income company financial financial position comprehensive income changes in equity of cash flows statements sheet statement statements OTHER INFORMATION Annual Integrated Report 2020 191

We communicate with the Executive Board and Supervisory Board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant findings in internal control that we identified during our audit. In this respect we also submit an additional report to the audit committee in accordance with Article 11 of the EU Regulation on specific requirements regarding statutory audit of public- interest entities. The information included in this additional report is consistent with our audit opinion in this auditor’s report.

We provide the Supervisory Board with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the Supervisory Board, we determine the key audit matters: those matters that were of most significance in the audit of the financial statements. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the public interest.

Eindhoven, February 18, 2021

Deloitte Accountants B.V. Initial for identification purposes:

B. Beemer

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other statement of statement consolidated financial balance income company financial financial position comprehensive income changes in equity of cash flows statements sheet statement statements OTHER INFORMATION Annual Integrated Report 2020 192

To the Shareholders and Supervisory Board of Kendrion N.V.

Assurance report of the independent auditor with respect to the 2020 Sustainability Information of Kendrion N.V.

Our conclusion We have reviewed the Sustainability Information in the 2020 Annual Report of Kendrion N.V. based in Amsterdam. A review is aimed at obtaining a limited level of assurance.

Based on our procedures performed nothing has come to our attention that causes us to believe that the sustainability information does not present, in all material respects, a reliable and adequate view of: ■ the policy and business operations with regard to corporate social responsibility; and ■ the thereto related events and achievements for the year 2020 as included in the section ‘reporting criteria’ as disclosed in the chapter ‘About the sustainability report’ of the 2020 Annual Report.

The sustainability information consists of performance information regarding Energy consumption and CO2-emission, Accidents and Lost Time Injuries, Illness rate and Number of Supplier audits in the sections ‘Facts and Figures’ on page 9 and ‘Action on Sustainability’ on pages 37 – 56 of the 2020 Annual Report (hereafter: “the KPIs”).

Basis for our conclusion We have performed our review on the sustainability information in accordance with Dutch law, including Dutch Standard 3000A ‘Assurance Engagements other than Audits or Reviews of Historical Financial Information’. This assurance engagement is aimed at obtaining limited assurance. Our responsibilities under this standard are further described in the section ‘Our responsibilities for the review of the sustainability information’ of our report.

We are independent of Kendrion N.V. in accordance with the ‘Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten’ (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore we have complied with the ‘Verordening gedrags- en beroepsregels accountants’ (VGBA, Dutch Code of Ethics).

We believe that the assurance evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion.

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other statement of statement consolidated financial balance income company financial financial position comprehensive income changes in equity of cash flows statements sheet statement statements OTHER INFORMATION Annual Integrated Report 2020 193

Reporting criteria The sustainability information needs to be read and understood together with the reporting criteria. Kendrion NV is solely responsible for selecting and applying these reporting criteria, taking into account applicable law and regulations related to reporting.

The reporting criteria used for the preparation of the sustainability information are disclosed in the chapter ‘About the sustainability report’ of the 2020 Annual Report.

Responsibilities of the Executive Board and the Supervisory Board for the sustainability information The Executive Board is responsible for the preparation of the sustainability information in accordance with reporting criteria as included in the section ‘reporting criteria’ and in the chapter ‘About the sustainability report’ in the 2020 Annual Report, including the identification of stakeholders and the definition of material matters. The choices made by the Executive Board regarding the scope of the sustainability information and the reporting policy are summarised in the chapter ‘About the sustainability report’ of the 2020 Annual Report.

The Executive Board is also responsible for such internal controls as the Executive Board determines is necessary to enable the preparation of the sustainability information that is free from material misstatement, whether due to fraud or error.

The Supervisory Board is responsible for overseeing the reporting process of Kendrion N.V.

Our responsibilities for the review of the sustainability information Our responsibility is to plan and perform the assurance engagement in a manner that allows us to obtain sufficient and appropriate assurance evidence for our conclusion.

Procedures performed to obtain a limited level of assurance are aimed to determine the plausibility of information and vary in nature and timing from, and are less in extent, than for a reasonable assurance engagement. The level of assurance obtained in assurance engagements with a limited level of assurance is therefore substantially less than the assurance obtained in an audit.

Misstatements can arise from fraud or errors and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the decisions of users taken on the basis of the sustainability information. The materiality affects the nature, timing and extent of our review procedures and the evaluation of the effect of identified misstatements on our conclusion.

We apply the ‘Nadere voorschriften accountantskantoren ter zake van assurance opdrachten (RA/AA)’ (Regulations for professional accountants practices on assurance engagements) and accordingly maintain a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other statement of statement consolidated financial balance income company financial financial position comprehensive income changes in equity of cash flows statements sheet statement statements OTHER INFORMATION Annual Integrated Report 2020 194

We have exercised professional judgement and have maintained professional scepticism throughout the review, in accordance with the Dutch Standard 3000A, ethical requirements and independence requirements.

Our review engagement included:

■ Reviewing the processes and systems for data gathering, including the aggregation of the five KPIs as included in the Integrated Report 2020; ■ Performing analytical review procedures on the five selected KPIs; ■ Inquiry with Corporate staff

We communicate with the Supervisory Board regarding, among other matters, the planned scope, timing and outcome of the review.

Eindhoven, 18 February 2021

Deloitte Accountants B.V.

B. Beemer

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other statement of statement consolidated financial balance income company financial financial position comprehensive income changes in equity of cash flows statements sheet statement statements FIVE-YEAR SUMMARY KENDRION N.V. CONSOLIDATED Annual Integrated Report 2020 195

1 2016 excluding one-off costs relating to simplifying EUR million, unless otherwise stated 2020 2019 6 2018 2017 7 2016 measures of EUR 5.7 million (after tax EUR 4.7 million), Statement of normalised comprehensive income 2017 excluding one-off costs relating to simplifying Revenue 396.4 412.4 448.6 461.8 443.4 measures of EUR 5.1 million (after tax EUR 3.8 million), Organic growth (3.9%) (8.1)% (2.9%) 4.2% 0.3% 2018 excluding one-off costs relating to simplifying Operating result before amortisation (EBITA)1 18.9 19.8 35.4 37.5 31.1 measures of EUR 8.8 million (after tax EUR 6.5 million), Depreciation of property, plant, equipment and software 25.7 24.0 23.1 22.5 20.3 EUR 0.3 million finance expenses and EUR 2.0 million tax Operating result before depreciation and amortisation (EBITDA)1 44.6 43.8 58.5 60.0 51.4 expenses for tax audit, 2019 excluding one-off costs Net profit for the period before amortisation1 11.7 12.6 24.3 25.7 22.3 relating to simplifying measures of EUR 2.9 million (after tax EUR 2.1 million), EUR 1,6 million claim settlement Statement of financial position (after tax EUR 1.2 million), EUR 1.2 million acquisition at 31 December conform financial statements costs (after tax 0.9 million), EUR 2.0 million positive release Total assets 429.1 357.1 375.3 360.2 347.1 from currency translation reserve, EUR 0.1 million finance Total equity 203.4 202.6 182.1 179.6 178.1 expenses and EUR 0.4 million tax expenses for tax audit Net interest-bearing debt 103.2 47.4 80.5 70.6 54.0 and 2020 excluding excluding one-off costs relating Working capital2 41.4 42.9 51.4 45.1 41.3 to simplifying measures of EUR 3.8 million (after tax Invested capital2, 3 174.4 169.6 179.6 163.7 138.3 EUR 2.9 million), EUR 0.6 million acquisition costs (after tax 0.4 million), EUR 0.6 finance expenses for tax audit Statement of normalised cash flows4 and EUR 0.2 million tax expenses relating to simplifying Net cash from operating activities 47.9 45.4 41.9 44.7 45.3 measures. Net cash from investing activities 16.4 19.8 31.3 28.3 23.0 2 Excluding accruals and provisions related to one-off costs. Free cash flow 31.5 25.5 10.5 16.4 22.3 3 Invested capital is property, plant and equipment, intangible assets, other investments and net working capital less Ratios goodwill and other intangibles related to acquisitions. Return on Sales (ROS)1 4.8% 4.8% 7.9% 8.1% 7.0% 4 Excluding cash flows relating to acquisitions and disposals Solvency 47.4% 56.7% 48.5% 49.8% 51.3% and excluding payments and receipts relating to one-off Net interest-bearing debt / EBITDA1 (debt cover) 2.3 1.1 1.4 1.2 1.1 costs. Net interest-bearing debt / equity (gearing) 0.5 0.2 0.4 0.4 0.3 5 The net financing charges exclude foreign exchange EBITDA1 / net finance costs (interest cover)5 17.0 29.9 36.6 35.6 24.5 differences, the commitment fees for unused facilities, the Return on Investment (ROI)1, 2, 3 10.8% 11.7% 19.7% 22.9% 22.5% amortisation of upfront and legal fees and the interest on Working capital2 in % of revenue 10.4% 10.4% 11.5% 9.8% 9.3% lease liabilities. Dividend payout ratio of net profit 50% 0% 52% 50% 53% 6 Restated due to retrospective correction of understated elimination of unrealized profit on inventory transactions Market capitalisation as at 31 December 247.9 312.9 283.7 542.9 358.3 between group companies as per 1 January 2020. Net interest-bearing debt as at 31 December 103.2 47.4 80.5 70.6 54.0 7 Restated due to application of IFRS 9, IFRS 15 and IFRS Theoretic value of the organisation (Enterprise value) 351.1 360.3 364.2 613.5 412.3 16 as per 1 January 2018. Number of employees at 31 December (FTE) 2,456 2,316 2,465 2,645 2,578

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other statement of statement consolidated financial balance income company financial financial position comprehensive income changes in equity of cash flows statements sheet statement statements PRINCIPAL SUBSIDIARIES Annual Integrated Report 2020 196 At 31 December 2020

Industrial

Industrial Actuators and Controls (Robert Lewin) Managing Director Kendrion (Donaueschingen/Engelswies) GmbH, Donaueschingen, Germany Robert Lewin Kendrion (Donaueschingen/Engelswies) GmbH, Engelswies, Germany Alfons Mattes Kendrion (China) Co. Ltd, Suzhou, P.R. China Telly Kuo Kendrion (Mishawaka) LLC, Mishawaka, Indiana, USA Corey Hurcomb Kendrion Industrial (Sibiu) S.R.L., Sibiu, Romania Mihai Petculescu Kendrion (Linz) GmbH, Linz, Austria Christian Edelmaier Kendrion Kuhnke Automation GmbH, Malente, Germany Robert Lewin Kendrion Kuhnke (Sweden) AB, Kristianstad, Sweden Ronnie Jennerheim

Industrial Brakes (Andreas Laschet) Managing Director Kendrion (Villingen) GmbH, Villingen-Schwenningen, Germany Ralf Wieland Kendrion (UK) Ltd., Bradford, United Kingdom Peter McShane Kendrion (China) Co. Ltd, Suzhou, P.R. China Telly Kuo Kendrion (Mishawaka) LLC, Mishawaka, Indiana, USA Corey Hurcomb Kendrion INTORQ GmbH, Aerzen, Germany Lars Knoke INTORQ (Shanghai) Co. Ltd, Shanghai, China Telly Kuo INTORQ US Inc., Atlanta, US Olaf Detlef INTORQ India Private Limited, Pune, India Aniket Gujrathi

Automotive (Ralf Wieland / Manfred Schlett) Managing Director Kendrion (Villingen) GmbH, Villingen-Schwenningen, Germany Ralf Wieland Kendrion Kuhnke Automotive GmbH, Malente, Germany Ronny Splettstößer Kendrion (Markdorf) GmbH, Markdorf, Germany Manfred Schlett

Kendrion (Eibiswald) GmbH, Eibiswald, Austria Klaus Pichler Kendrion Automotive (Sibiu) S.R.L, Sibiu, Romania Andra Boboc Kendrion (Prostějov) s.r.o, Prostějov, Czech Republic Tomas Soldan

Kendrion (Shelby) Inc., Shelby, North Carolina, USA Rhett Cathcart Kendrion (China) Co. Ltd, Suzhou, P.R. China Telly Kuo

A complete list of all subsidiaries is available from the Chamber of Commerce in Utrecht (number 30113646) and from the Company offices. Kendrion N.V. has, directly or indirectly, a 100% interest in all subsidiaries, except for Newton CFV, Inc., as disclosed in note 3 of the Financial Statements. Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other statement of statement consolidated financial balance income company financial financial position comprehensive income changes in equity of cash flows statements sheet statement statements ABOUT THE SUSTAINABILITY REPORT Annual Integrated Report 2020 197

The scope of Kendrion’s CSR reporting is based on the During 2020, the internal management information system and ‘Sustainability’ on pages 41-49, have been subjected to a information requirements of our key stakeholder groups. internal controls for non-financial reporting were further review by the external auditor Deloitte Accountants B.V. The In order to ensure that Kendrion meets its information improved. auditor’s report with limited assurance on selected targets is requirements towards its stakeholders, a materiality analysis Being transparent and accountable is fundamental to the way included on pages 192-194. was carried out in 2018, the outcome of which has been used in which Kendrion operates. Kendrion adheres to a solid For the reported numbers associated with relative energy as input for Kendrion’s sustainability program and the 2019- validation and reporting process supported by an appropriate consumption, relative CO2 emission, accidents per 1,000 FTE, 2023 target framework. In 2020, Kendrion commissioned the control framework in order to safeguard the quality and Lost Time Injuries (LTI), illness rate and audits performed at performance of a new materiality analysis. Kendrion selected accuracy of data collected. With a view to maintain the quality direct suppliers, Kendrion used the GRI Standards Specific relevant material themes and topics derived from Kendrion’s and consistency of the data reported, the reporting process Disclosures 302-1, 305-1, 305-2 and 403-2 respectively as strategic plan, its activities and applicable laws and regulations. and applicable definitions relevant to all non-financial data described in the GRI referenced claim mentioned above. We For a description of our materiality analysis, please refer to collected and subsequently consolidated, are recorded in an report on the same indicators as in previous years and there are pages 38-39 of this Annual Integrated Report. internal reporting manual. Internal control procedures no material restatements on the information accordingly safeguarding the quality and accuracy of non-financial data presented in previous years. Kendrion makes use of the Global Reporting Initiative (GRI) collected are part of Kendrion’s Risk Management Framework. reference claims for most of the general information and Compliance with the internal reporting manual and the internal Definitions, reporting period and scope material topics, including: economic performance, anti- control procedures are reviewed by the Global Internal Audit corruption, energy efficiency, emissions to air, occupational and Risk Manager. Energy consumption and CO2 emission safety and health and non-discrimination and equal The information on energy consumption is based on the opportunities. This Annual Integrated Report references The sustainability figures and data presented in this Annual consumption of Kendrion’s production facilities (electricity, Disclosure 201-1 (a) from GRI 201: Economic performance Integrated Report are not always fully comparable with those of natural gas, fuel oil) in Germany, the Czech Republic, Austria, 2016, Disclosure 205-3 from GRI 205: Anti-corruption 2016, other companies. This may be caused by differences in targets the USA, China, India and Romania. For greenhouse gas Disclosure 302-1 (a, c, e-g) from GRI 302: Energy 2016, and definitions applied and the nature and spread of Kendrion’s emissions, Kendrion applies the same reporting scope as Disclosure 305-1 (a, d, f-g) from GRI 305: Emissions 2016, activities making comparison with other industrial companies for energy consumption, only operational control. In our

Disclosure 305-2 (a, d, f-g) from GRI 305: Emissions 2016, difficult. Information used was collected from the existing calculations we only included CO2 emissions, other emissions Disclosure 403-9 (a, d-g) from GRI 403: Occupational Health management and reporting systems. Any estimates or like CH4, N2O, HFCs, PFCs, SF6 and NF3 are not material for and Safety 2018, Disclosure 405-1 (a-i, b-i) from GRI 405: forecasts included are explicitly referred to as such. us and therefore not included. Internal and external transport Diversity and Equal Opportunities 2016. For the material No significant changes with regard to our own operation under Kendrion’s control is limited, therefore transport themes ‘responsible procurement practices’ and ‘training and locations and/or suppliers have taken place in 2020. emissions are excluded. education’, Kendrion has developed its own indicators,

The non-financial information reported faithfully represents the The relative energy consumption and CO2 emissions are Kendrion’s non-financial reporting includes only data from outcome of systematic data collection and review. based on the added value of the relevant production facilities. entities that are – directly or indirectly – wholly owned by The added value is the revenue plus other income, minus the Kendrion N.V., unless explicitly stated otherwise. Acquisitions The reported numbers for energy consumption, absolute and changes in inventory and work in progress and minus raw are reported as from the effective date ownership is acquired. relative & CO2 emissions, accidents, lost time injury, illness, materials and subcontracted work. supply chain management as described in the section

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other statement of statement consolidated financial balance income company financial financial position comprehensive income changes in equity of cash flows statements sheet statement statements ABOUT THE SUSTAINABILITY REPORT Annual Report 2019 198

The absolute and relative energy consumption and CO2 accident (‘at work accident’ as well as ‘way-to-work accident’) Kendrion has not selected underlying performance indicators emissions are reported for a 12-month period. Where or disease. In several locations, LTI is not recoded where there or GRI indicators for the following topics: ‘non-discrimination information is timely available, the absolute and relative energy is no longer a wage continuation obligation for the employer and equal opportunities’, ‘market presence’, ‘responsible consumption and CO2 emissions are reported for the period 1 pursuant to local regulation. Kendrion intends to align the LTI material consumption’, ‘environmental & energy management’, January 2020 up to and including 31 December 2020. When reporting across all locations so future reporting makes no ‘human rights’, ‘effluents and waste management’, ‘customer reporting information takes longer to obtain, the absolute and difference in whether the salaries or wages were paid by privacy and data security’, ‘anti-competitive behaviour’, relative energy consumption and CO2 emissions are reported Kendrion or by an external institution during that time. ‘biodiversity’, ‘responsible local citizenship’, ‘innovation’, for the period from 1 December 2019 ‘customer relationship and satisfaction’, ‘remuneration policy’ up to and including 30 November 2020. Comparative figures and ‘business ethics’. Following further engagement with for previous years are calculated based on identical timeframes. A return to limited duty or alternative work for the same Kendrion’s stakeholders in the course of 2020, Kendrion will organisation does not count as ‘lost days’. Counting of ‘lost consider to what extent these material themes continue to be

Calculation of the CO2 emissions is based on the following days’ begins with the first scheduled working day of full relevant to stakeholders and whether indicators on these topics conversion factors: absence (e.g. the day after the accident). A lost day counts as should be developed. Electricity generated from renewable sources: 0 one full day regardless of whether the employee has a part-time Electricity generated from non-renewable sources (average): or a full-time contract. Kendrion does not specify LTI data per 0.433 kg/kWh (2019: 0.443 kg/kWh region, worker type or gender as Kendrion considers this Renewable gas for plants with carbon neutral contracts: 0 information not relevant to its current operations. Natural gas for other plants (average): 0.145 kg/kWh (2019: 0.200 kg/kWh) Illness rate Fuel oil (average): 0.267 kg/kWh (2019: 0.200 kg/kWh) The reported illness rate is based on the total illness hours. The locations in Shelby and Atlanta reported 0% illness on a yearly Accidents and LTI basis since no registration of illness takes place. The total Kendrion reports the total number of work-related accidents illness hours with and without wage continuation, cumulative during working time or on the way to or from work for its own divided by the total timetable hours, cumulative. employees and independent contractors under supervision of Kendrion. Only the accidents that the group entity had Supplier audits to report to an external institution are reported. As of 2017, As mentioned above, for reporting on the number of supplier Kendrion reports accidents from all group entities that caused audits (i.e. ‘responsible procurement practices’) Kendrion an absence of more than three calendar days, not including makes use of its own indicator. The supplier audits are internal the day of the accident. This definition is based on regulations audits by Kendrion employees based on an internal procedure applicable in Germany. In addition, Kendrion reports the that prescribes the collection of CR documentation of the absence resulting from work-related accidents. The Lost Time relevant supplier in the case the supplier is ISO certified and the Injury (LTI) is time (‘scheduled working days’) that could not be use of standardized self-assessment questionnaires in the case worked (and is thus ‘lost’) as a consequence of an employee the supplier is not ISO certified. being unable to perform the usual work due to an occupational

Consolidated Consolidated statement Consolidated Consolidated Notes to the Company Company Notes to the Home statement of of profit and loss and other statement of statement consolidated financial balance income company financial financial position comprehensive income changes in equity of cash flows statements sheet statement statements